Serving as a Personal Representative: The Good, The Bad, and the Ugly

 

Earlier this year, my brother passed away. Recently, I was appointed by the Surrogate’s Court of Suffolk County, New York as his estate’s personal representative and provided Certificates of Appointment indicating my authority to collect, manage, and distribute assets of the estate.

 

Under New York law, estates with assets under $50,000 are considered “small.” My brother’s estate, with just an $11,363 bank account and about $90,000 of unsecured debts is virtually “micro”… and insolvent (i.e., estate assets are insufficient to pay debts, let alone make any bequests to heirs).

This is the situation that I have been tasked with administering and, needless to say, it has been a huge learning experience. Below are five things I have learned along the way that may be useful if you are ever asked to serve as the executor or administrator (when someone dies intestate without a will) of someone’s estate:

 

Forensic Accounting is Difficult- My brother left little information about his finances and never discussed money with me or his partner of 16 years. Drawing on my CFP® training, there was only one way to begin: a thorough examination of his assets and debts. It took me days to construct a pro forma net worth statement using data from bank and billing statements, a checkbook register, and tax records. Needless to say, his partner and I were both shocked when I finished doing the math.

 

Legal Advice is Necessary- A Long Island lawyer charged the estate a $1,500 fee for small estate legal services. It is well worth the cost to have a legal professional process required court paperwork and advise on process steps and state laws (e.g., the order in which debts are paid and the fact that creditors in New York cases have seven months from my appointment as personal representative to submit claims).

 

Handling an Out-of-State Estate is Manageable- A personal representative has a legal duty to administer an estate according to state law. One of my fiduciary duties was establishing an estate bank account. Living 1,200 miles away from my late brother's New York home, I was worried this would be costly (read: require expensive travel expenses) and/or problematic. Instead it was “easy peasy.” A big gratitude shout out to Bank of America's estate planning division which seamlessly transferred the $11,363 from my brother’s New York bank to the Florida based estate account.

 

Vultures Are Out There- My brother co-owned a house with his partner through a legal titling arrangement known as joint tenancy with right of survivorship. When he passed, the house automatically passed to her as the surviving co-owner. This has not stopped over a dozen vulture realtors and house flippers (to date) from contacting both of us  by mail and phone with offers to buy the house for “quick cash.” Apparently, these vultures scour probate court filings to get data about a deceased person's home address and contact information for their personal representative. Some of the vultures have been exceptionally cruel including one that sent a fake check made out to my deceased brother.

 

Spreadsheets are Your Friend- I created an Excel spreadsheet to manage the distribution of limited estate assets to creditors after the seven-month waiting period (for creditors to submit claims) is over in February. There is now $8,174 left in the estate account after paying the lawyer and reimbursing funeral expenses (the top two priority claims) and a check printing fee. There are also already tens of thousands of dollars of formal debt claims. Since the estate is insolvent, each unsecured creditor will receive pennies on the dollar based on the percentage of their debt claim to the overall debt total. My spreadsheet makes this math very easy and will also serve as a final accounting document to submit to the New York court system when the estate is closed.

There were other learning lessons as well, but I choose not to share them in a public forum. Suffice to say, things that I learned about how estate planning is supposed to take place in an ideal world may not happen with an insolvent estate in the real world. 

Bottom line: If you are asked to serve as the personal representative of someone's estate, know what you are getting into and get assistance from an attorney who specializes in estate planning. Also, you have the right to say "no" by filing formal declination documents. In this case, the surrogate's court will find someone else.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Take-Aways from #AFCPE2023- Part II

 

As I noted last week, I slowly made my way since last December through over a dozen video recordings of presentations made at the 2023 Association for Financial Counseling and Planning Education (AFCPE) Symposium.

Below is another very eclectic summary of key take-aways from recorded presentations on topics of personal interest:

 

Debt Repayment Acceleration- The best way to pay off debt quickly is a “rollover method” where extra payments on debt get shifted from one creditor to another as debts are repaid. The free Utah State University PowerPay program is a great resource to create a debt reduction calendar. There are four PowerPay payoff methods to apply extra payments to: highest interest rate first, shortest term first, lowest balance first, and in the order that debts are entered.

 

Estate Planning- About 60% of the U.S. population dies without a will. In that case, state-specific intestacy laws apply. One reason for a lack of wills is that people come to a standstill over who to name as a guardian for minor children. If a guardian or executor does not want to serve, they can decline at the outset or in the middle of estate administration. Step-children are not considered children unless the creator of a will defines them as such.

 

Insolvent Estates- This is where a deceased person’s debts exceed their assets (i.e., a negative net worth). Every state has a law that states “here’s who gets paid first” (e.g., 1. Attorney, 2. Payor of funeral expenses, 3. Executor, 4. Taxes, 5. Medicaid, 6. Recent medical bills, and 7. Everybody else (credit cards, old medical debt, loans, etc.). In estates with limited assets, entities on the bottom, like credit cards, don’t get paid and there is no money for heirs.

 

Scams- Experts estimate that only 15% of scams are actually reported. Fraud is rampant and some businesses, with the same structure as legitimate corporations, actually exist solely to perpetuate scams. Scammers collects bits of information about people, put it together, and compile in within data bases to be used for fraudulent transactions. Scammers know how the human brain works and how to put people in a state of fear or greed and apply time pressure.

 

Professional Uses of AI- The session began with a quote (“If you don’t like change, you’ll like irrelevance even less) and noted that AI is already part of our lives. Think virtual assistants like Siri and Alexa and autofill in Microsoft Word). Professionals should not use generative AI platforms like ChatGPT unless they have expertise to verify the accuracy of the output and AI output should always be considered a first draft. AI prompts need to be very specific, such as including a word count and level of understanding (e.g., “explain ChatGPT to a 10-year old”).

 

Cryptocurrency- Almost a third of investors, especially young adults, own cryptocurrency. Disadvantages include the following: 1. Use for illegal activities and scams, 2. Fees can be expensive, 3. Regulatory risk (it is possible that countries could outlaw its use), 4. Price volatility (there have been bubbles resulting in big losses), 5. Security risk (crypto miners could be hacked), and 6. No government (e.g., FDIC or SIPC in the U.S.) protection.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Take-Aways from #AFCPE2023- Part I

 

One of the great features of the annual Association for Financial Counseling and Planning Education (AFCPE) Symposium is that AFCPE now makes video recordings of all of the breakout sessions and makes them available to attendees for a year. Gone are the days when you need to choose one session from among three topics of interest and miss the other two.

 

During the past eight months, I have slowly made my way through parts of the 2023 Symposium that I missed and was interested in, including a general session about poverty in America when my flight was abruptly moved up (without my consent) and I had to leave early. In this post and the next, I will provide a very eclectic summary of my key take-aways from the “rest of the Symposium”:

 

Poverty in America- One in nine (38 million) Americans live below the poverty line and one in eighteen live in “deep poverty.” Key reasons why poverty persists are the job market and housing market, which is brutal for poor people. Also, the U.S. does a poor job of connecting people to programs they need and it subsidizes affluence instead of poverty. Example: The amount provided by mortgage interest deductions is three times that of housing subsidies.

 

Veterans Benefits- Many military Veterans do not receive benefits earned for service to our country. The three top reasons why disability claims are denied by the Department of Veterans Affairs (VA) are: 1. Not enough supporting medical evidence, 2. Failure to attend a scheduled medical exam, and 3. A disability is not connected to military service. No taxes are owed on VA disability compensation and Veterans can receive both VA and Social Security disability.

 

Financial Education- “Just in time” financial education that is tied to an upcoming decision or event is more effective than generic interventions. Other principles of effective financial education are 1. Knowing the target audience receiving services, 2. Providing actionable, relevant, and timely information, 3. Building on learners’ motivation, and 4. Making it easy for people to make good decisions and follow through on information and skills that they learn.

 

Family Caregivers- Caregiving can happen suddenly and caregivers can be caught off guard both emotionally and financially. Many caregivers have no idea what to expect and there are not a lot of institutional supports. Family caregivers spend, on average, $7,000 annually out of pocket. Additional opportunity costs include decreased work hours, passed up promotions, or leaving a job completely. One study estimated $304,000 in lost lifetime wages and benefits.

 

Financial Fraud- The top scam category in 2022 was imposter scams. Financial scam impacts are both financial and non-financial (e.g., PTSD, anxiety, depression). Scams often capitalize on unverifiable information and pressure people to make quick decisions. Protective factors against scams include prior experience with scams (experience is a great teacher), knowledge of scam methods (a benefit of financial education!) and bouncing ideas off of others for feedback. Social isolation, on the other hand, increases people’s vulnerability for fraud.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

Things to Learn From a Tax Return

 

With less than five months remaining in 2024, now is the time to begin serious tax planning for your 2024 income tax return. I recently attended a webinar with some tips for financial advisors about reviewing clients’ tax returns. The advice also applies to taxpayers themselves.

 

Below are my take-aways from this presentation:

 

Review a Draft Return- It is wise to review a draft of your annual tax return before it is submitted. My tax preparer provides me with a draft paper copy to take home and review before my taxes are submitted to the IRS. Not only does this provide an opportunity to catch possible errors and omissions, but it also provides valuable insights about household finances and a source of questions about tax calculations and future tax planning for my second visit.

 

Beware QCD Reporting Errors- The problem is that 1099-R forms for retirement plan withdrawals only show the gross distribution amount and not the amount that taxpayers age 70.5+ elect to donate to a qualified charity via a qualified charitable distribution (QCD). Tax rules state that the letters “QCD” should be placed on the 1040 form line (4b) for “IRA Distributions” to explain the difference between the gross amount and taxable amount, but some tax preparers forget to do this and then taxpayers have to file an amended return .

 

Stay Away From SALY- SALY is an acronym for “Same as Last Year.” When it comes to income taxes, rarely are household finances exactly the same from one year to the next. Tax laws change and people’s lives change (birth of a child, marriage, retirement, widowhood, the start of required minimum distributions [RMDs]), which necessitates future tax projections.

 

Know Your Effective Tax Rate- Effective tax rates are useful for calculating tax withholding and understanding the totality of your income tax payments. Simply look at your 2023 tax return and divide your total tax owed by taxable income. For example, if you pay $16,000 of tax on a $100,000 taxable income, the effective tax rate is 16%, even though single and married filing jointly tax filers would be in the 22% marginal tax bracket (the tax rate on your last dollar of income) in 2024.

 

Watch Out for State Tax Non-Conformities- I now live in a state (Florida) where there is no income tax but, for Money Talk readers who do, it is important to know where your state tax rules diverge from federal tax rules. Otherwise, you could overlook valuable tax deductions (e.g., medical expenses and write-offs for college savings plan contributions).

 

Accelerate Carefully- Consider accelerating income in early retirement years (before RMDs), during years with lower-than-normal income, and in the last year of filing a joint tax return (before single taxpayer status applies). Consider accelerating deductions (e.g., bunching itemized deductions in one year) when you realize large capital gains, have a high-earning year, or are near “tripwires” for tax on Social Security, IRMAA Medicare premiums, and the net investment income tax. IRMAA is not a tax, per se, but it is a drag on your bottom line.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Three Personal Finance Book Anniversaries: Lessons Learned

I’ve solely authored three personal finance trade books so far during my life and 2024 is a milestone year.

2024 is the anniversary of Saving On A Shoestring (my first book published 30 years ago in 1994) and Investing On A Shoestring (published 25 years ago in 1999). In addition, four years ago on August 3, 2020, my latest book, Flipping A Switch: Your Guide to Happiness and Financial Security in Later Life, was published.

Flipping a Switch discusses 35 financial, social, and lifestyle “flipped switches” (a metaphor for transitions) in later life. It was inspired by a conference speaker who noted that people who diligently save for retirement for decades must suddenly “flip a switch” from saving to spending down their assets. Each chapter has “How to Flip This Switch” action steps for readers.

 

All three books are available on Amazon and sales for Flipping a Switch remain steady. Earlier this year, the book reached #8 and #14 in Amazon’s wealth management and retirement planning categories, respectively. This followed a mention in a nationally syndicated newspaper article. A similar thing happened in 2021, when it ranked #7 and #14, respectively after another AP article.

 

Below are five lessons I’ve learned from being a three-time personal finance book author:

 

Decide Your Publishing Route- There are three options: traditional publishers that pay an advance against earnings and provide the most support, hybrid publishers where authors self-fund certain book expenses in exchange for specific services (e.g., copy-editing, book cover design), and self-publishing, where authors take on all publishing responsibilities and bear all costs. My 1990s books each had a traditional publisher while Flipping A Switch has a hybrid publisher.

 

Have Reasonable Expectations- You could make less than minimum wage when you add up time spent writing a book proposal, shopping it around, and writing and marketing a book. For both self-published and traditionally published books, average sales are low for the majority of authors but can be significantly higher for those with substantial platforms or bestselling titles. Median book-related earnings for all authors in 2022 were $2,000 and over 90% of self-published books sell less than 100 copies. By those standards, Flipping a Switch is doing well.

 

Do Your Own PR- Even traditional publishers quickly move on to the next book once yours is published. That’s why a few select social media platforms that your target readers use are critical to get the word out. For example, I use Facebook, LinkedIn, and X. Ideally, start pitching a book idea before you even start writing. Example: I am mulling over a new book called Money After 70. Prepare a media kit for your book with interview questions, an author bio, and a headshot photo.

 

Show Your Unique Value- To get a book published, you must show that its content is unique and convince marketing, as well as editorial, decision-makers at publishing companies. This requires a detailed review and analysis of comparable titles and pitches tied to current events or trends. Book publishers are also impressed by authors with existing social media and professional connections.

 

Work Smarter, Not Harder- Books need not start “from scratch.” For many non-fiction authors, myself included, books start with a compilation of previous writing (e.g., blog posts and articles) and/or presentations (e.g., speeches, webinars, and classes). It is also important to have a “why” for writing a book (e.g., building credibility for a business brand) and strong passion for the topic.