A few months after the death of her mother, “Janice” continued to manage her mother’s trust as if she were still alive. “Mom used to give each of my kids $13,000 a year – which is tax free – so I thought I would continue that.”
The problem is that once someone dies, the provisions that say who is to get what from the trust following the grantor’s death is what should take place. Any gifts that the grantor used to make during her lifetime should no longer continue. To do otherwise invites a challenge by the rightful beneficiaries – and likely personal liability on the part of the person who is making the improper gifts.
Let’s say, for example, that Mom’s trust in this case is supposed to be divided equally between Janice and her sister Karen. But Janice continues to make the $13,000 gifts to her children that her mother would have made at Christmas. Since Janice is acting as the trustee, she could choose to treat those as gifts from herself to her children and charge them against her share alone. She certainly shouldn’t reduce Karen’s share by those gifts.
The same holds true when paying for travel expenses related to the last illness or funeral. If Janice pays money out of her mother’s trust for her children to fly down to visit with their grandmother before her passing, or to later attend her funeral, these are not valid expenses of the administration. The only person whose travel expenses should rightfully be paid by the trust is any named trustee (Janice) or personal representative (executor) for the estate.
Another mistake that people commonly make after the grantor’s death is when they continue to use the durable power of attorney. The word “durable” in the description of the power of attorney simply means that the power of attorney survives the grantor’s incapacity. No durable power of attorney survives the grantor. When the grantor dies so does her durable power of attorney. So if expenses need to be paid or if checks need to be written then those monies should be paid by the estate or trust by the personal representative and/or the trustee – not by the holder of the durable power of attorney.
When the estate doesn’t have a whole lot of money and it is questionable whether the assets will even cover all of the deceased’s bills and expenses, it is very important that the personal representative follow proper protocol before making any payments – or the personal representative might find themselves personally liable for improper payments.
I can explain this best by example. Suppose that Dad dies with $10,000 of credit card debt, $17,000 of medical expenses, a mortgage in the amount of $120,000 and assets other than the home the total value of which is $50,000? Which bills, if any, should the personal representative pay?
That’s actually a trickier question that you might imagine. Florida law provides that all known and reasonably ascertainable creditors should receive a notice of creditors during the estate administration. Assuming that they all properly file a claim against the estate, if the estate assets are insufficient to pay all of the claims, then Florida law prioritizes the claims as to which should be paid before others.
Secured claims, like the mortgage against the home, usually can’t be discharged in an estate proceeding while credit card debt may be. It all depends upon how the law prioritizes the claims. Moreover, other fees and expenses, such as those associated with probating the estate usually have first priority. The reason for this is that estates with more creditors than assets would not be able to get representation if the legal fees and costs didn’t have priority.
If the personal representative ignores the process and the legal priority, then she is likely to be personally liable for improper payments and may have to reimburse the estate from her own funds.
So if you are managing someone’s financial affairs during their lifetime or thereafter – it is always important to consult your estate attorney before making gifts or paying expenses. If you inadvertently make payments or transfers other than what the law allows, you could find yourself having to reimburse the estate from your own funds.