I am running into a number of younger clients who are inheriting more and more from grandparents and parents. Thankfully, many are honoring the hard work and thriftiness of their family by investing the inheritance and not wasting it.
With much of our country’s wealth in the hands of retirees, this trend should continue. And we will likely see more and more people under the age of 40 executing a relative’s will. Though the process may seem straightforward enough, there are gotchas to look out for.
Pay the Government First
If you end up being an executor, you have to understand priority of payments. It’s also wise to know who brings the most firepower when it comes to collecting debts. Case in point, I offer your Federal Government.
In a recent case,
An estate’s executor was told by the IRS in e-mailed advice that he will be personally liable for penalties against the estate if (a) distributions have been made to beneficiaries or creditors instead of paying the IRS and (b) there is not enough money left in the estate to pay the penalties*.
In other words, if you are the executor, and the estate owes debt but also owes tax penalties, and you use the estate money to pay the debts and leave the tax liability outstanding, you may be personally liable for that tax bill.
And following up what I said above, who has more firepower – a lender who can sue you, or the Federal government who can seize assets, lock you up, shoot you etc (police, IRS investigators, FBI etc don’t work for lenders).
With all of this said, be very careful when you are an executor. You may have siblings or other relatives clamouring for their inheritance but I would recommend:
- Talking to an estate planning attorney and getting advice
- Waiting until notification periods are over before distributing inheritances
- Following probate laws extensively
- Making sure there are no outstanding tax liabilities to any government authority
This list is not exhaustive but it’s a start. If you have any questions, we can help. We work with estate planning attorneys to develop comprehensive plans for our clients to help them prepare and make smarter choices about money. Feel free to either:
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Thanks for reading!
*Source: Steve Leimburg’s Estate Planning Newsletter 4/4/2012 RE: ECC201212020