Ask Liz Weston

Get smart with your money

Estate Planning

Q&A: Financial institutions reject powers of attorney

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Dear Liz: I read your column about the parent who unexpectedly had to take over for their incapacitated son. You suggested every adult have a power of attorney and healthcare proxy. Excellent advice! However, as I discovered in dealing with my father’s illness and estate, these general documents are not always recognized by the very institutions they were designed for. His bank, mortgage company and health insurance company would only recognize their versions of these documents.

Fortunately, while he was still able to, I was able to procure each of these documents with his signatures on them but it was very stressful at a difficult time for all of us. I would suggest you amend your advice to people to check to see if their banks and so on also require their specific forms.

Answer: Financial institutions are supposed to accept properly drafted powers of attorney, but some of them insist on their own forms, agrees Burton Mitchell, an estate planning attorney in Los Angeles.

“Sometimes one can get around these rules by appealing to higher ups in the organization, but it is unnecessarily difficult, time-consuming and complicated,” Mitchell says.

Checking with your financial institutions now could avoid hassles later.

Q&A: Successor trustee can use estate funds to hire help

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Dear Liz: I have named my daughter as executor of my revocable living trust. I am concerned that she may not have the ability to carry out all of the functions required of an executor. Are there entities she can hire using trust funds to fulfill her duties?

Answer: Technically, an executor is a person who settles an estate through probate court. Because you have a living trust, your estate should avoid probate court, and your daughter’s role is known as a “successor trustee.”

The jobs of executor and successor trustee are much the same after a death. They’re required to inventory assets, pay your final bills, file your last tax returns and distribute your assets according to your estate documents. Both executors and successor trustees are allowed to use estate funds to hire any help needed, including an attorney and a tax pro. If you’re already working with professionals you trust, make sure she has their contact information.

Q&A: Bowing out of trustee duty

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Dear Liz: My husband agreed to serve as successor trustee for his brother’s living trust several years ago. My brother-in-law also added me as a backup. My brother-in-law’s financial situation has gotten very complicated and we would like to be removed as trustees. How do we go about this removal? My husband has asked his brother to see the lawyer who drafted the trust so they can both discuss the change, but his brother has ignored this request for several months.

Answer: A successor trustee’s role is similar to that of an executor. Both are charged with settling someone’s estate. Being asked to serve is an honor, since the person choosing you is saying they expect you will act with honor, integrity and prudence. But you can’t be forced to serve, even if you initially said yes.

Your brother-in-law may have already named other alternatives. If not, a court can appoint someone. This would undermine one of the benefits of a living trust, which is to avoid a court’s involvement in settling an estate. But that’s ultimately your brother-in-law’s problem to solve, not yours.

Before you bail, though, understand that as successor trustee or executor, you don’t have to be a legal or tax expert. You can use the estate’s resources to hire people to help you — and in all but the simplest estates, you probably should.

Of course, financial complications can lead to other complications — family fights, disgruntled heirs and so on. You may no longer have the energy or willingness to face such difficulties. If that’s the case, you’ve given your brother-in-law the heads-up he needs to make other arrangements.

Q&A: How to handle cash savings of deceased parents

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Dear Liz: My mother passed away a little over a year ago, and my father about 18 months prior to her. I discovered that my parents saved up quite a lot of cash (in the six figures), and I’m afraid to deposit it without triggering the IRS. My parents routinely saved anywhere from $5,000 to up to $20,000 per year for the last 30 years. I read my mom’s handwriting on the envelopes with the dates. How can I deposit all this without triggering the IRS? Some of the bills are “vintage” so I will keep them to see if they’re worth more than face value. I also thought about using it to buy real estate.

Answer: You mention “triggering the IRS” as if your deposit might set off an explosion of audit notices and tax liens. In reality, you’re far more likely to cause yourself grief by trying to avoid IRS notice than you are by simply depositing the money.

Banks report large cash deposits — typically those of $10,000 or more — to the IRS as a way to combat money laundering. Anti-money-laundering rules also have been extended to real estate deals. Banks are looking for smaller deposits that could add up to more than $10,000, so don’t think spreading out the deposits will help you avoid scrutiny.

“Depositing the money all at once would probably arouse less suspicion with the bank than making a continuing series of deposits just under $10,000,” says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

Luscombe suggests retaining all those envelopes with your mother’s handwriting. If you are questioned by your bank or the IRS, the envelopes could help show your parents were gradually saving the money over time rather than engaging in some money-raising scheme on which taxes were never paid.

You didn’t mention if your parents had wills or other estate documents, or if there are other beneficiaries. Consult with an estate planning attorney to see if the cash needs to be deposited in the name of your mother’s estate.

Jennifer Sawday, an estate planning attorney in Long Beach, Calif., recommends going in person to your bank to ask for an appointment to make a large cash deposit. Ideally, you can discuss the situation and disclose the source of the funds in a private office, where you can’t be overheard. Ask if the bank can hire an armored courier to pick you up at your home to reduce the chance you’ll be robbed en route, Sawday suggests.

Please don’t delay, since theft isn’t the only concern. Cash also can be lost to fire, floods and other disasters. (One can only imagine how many bank-averse people lost cash in the recent Los Angeles fires.) Plus, cash tends to lose value over time thanks to inflation–the vast majority of “vintage” bills are worth much less than when they were printed. You’ll want to at least start earning some interest on the money, and perhaps put it to work in other investments.

Q&A: Can stepmother prevent siblings from sharing their inheritance?

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Dear Liz: My father passed away in May of last year. In his trust, he intentionally left out one of my four children. The remaining three, who were to inherit a substantial sum, decided to pool their money and share it with their excluded sibling.

My stepmother, who is in charge of his trust, has told other recipients of his largess that she will not be distributing any money to my children. She claims that their decision to give money to their sibling is a violation of my father’s wishes. Can she do this legally and would there be any consequences to her for doing this?

Answer: That depends on the trust’s language. Your father may have granted your stepmother the power to make discretionary distributions, or may have explicitly stated that distributions could be withheld from your children if they planned to share with the disinherited grandchild.

That’s not the norm, however. If the trust requires her to distribute the money and she fails to do so, your children could sue her for breaching her fiduciary duties and ask a court to replace her as trustee, says Jennifer Sawday, an estate planning attorney in Long Beach. If your stepmother’s attorney hasn’t explained this to her already, your kids may need to hire one who will.

The unanswered question: Why did your kids make their plan known, rather than simply waiting close-mouthed until the money was distributed? Perhaps they wanted to make a show of solidarity with their sibling, but the smarter course would have been to keep their intentions under wraps until the money landed in their accounts and was theirs to spend however they saw fit.