Over the course of several years, Joan Adams* (an elderly woman) developed a close friendship with Susan. Susan had known Joan’s daughters since high school and lived in the same neighborhood. Susan became an integral part of Joan’s life, assisting her with daily tasks and eventually moving in with her. Recognizing Susan’s role in her life, Joan made her the power of attorney and the executor of her Will, which divided her estate equally among Susan and Joan’s two daughters.
When Joan died at age 85, her estate included a house valued at $375,000 and bank accounts totaling about $10,000. A few months after Joan’s death, her daughters began asking Susan about the status of the estate. Susan repeatedly told them she was working on it.
Nearly two years passed, and Joan’s daughters remained unsuccessful in getting Susan to complete administration of the estate. In fact, Susan never even started the process up to this point and all the while, she continued to live in Joan’s home.
Delayed Estate Administration Creates Costly Legal Problems
Joan’s daughters hired an estate law attorney that could assist them in getting some answers from Susan regarding the status of the estate and, if necessary, compel Susan to fulfill her duties as executor. Their attorney sent a letter to Susan threatening litigation seeking to remove and replace her with another estate administrator and made a request for an accounting of the estate. Susan had no choice but to seek her own legal counsel, who advised her of her fiduciary obligations to this estate and the beneficiaries.
Susan’s delay brought to light several legal complexities. While there is no estate tax in New Jersey and, currently, no federal estate tax for an estate this size, Susan is a named beneficiary and, since she is a friend of Joan’s, her share of the inheritance is subject to inheritance taxes. Joan’s daughters would not have to pay inheritance taxes as “Class A” beneficiaries; however, Susan is a “Class D” beneficiary, subject to a 15% inheritance tax on her share of the estate, up to the first $700,000. In addition, if these tax returns are not filed in a timely manner, they will be subject to additional interest and penalties.
Complicating matters, it was discovered that Joan was generous with her assets, giving $200,000 to her daughters and $300,000 to Susan in the years leading up to her death. These gifts, considered “in contemplation of death,” were also subject to inheritance tax, exacerbating the estate’s tax burden.
Joan’s daughters argued that Susan should bear the responsibility for these taxes and associated costs, a stance that highlights the intricate dynamics at play when the executor may also be a beneficiary with differing tax implications.
Who is Chosen to Administer an Estate Matters
This case, which is still ongoing, underscores the critical importance of choosing the right executor for your estate and understanding the impact different beneficiaries can have. The administrator must understand their fiduciary duties and be willing to carry them out before critical deadlines pass. Joan’s estate case also illustrates the need for thorough planning and consideration of all potential outcomes when designating an executor and beneficiaries.
Joan’s story serves as a poignant reminder of these crucial aspects of estate planning, urging individuals to approach these decisions with care and foresight. The experienced estate planning attorneys at Timothy Rice Estate and Elder Law are here to assist with both estate planning and administration of an estate after a death. Contact us for a free video consultation.
*Names and some details have been changed to protect the client’s privacy.
