Keeping Your Head During Estate Settlement

Emotions will probably run high during estate settlement. Stopping to think — and setting goals — can help you make the most of any inheritance. Here's the main problem with doing a “regular” series of pieces about estate settlement: Nothing is regular.

You have fits of activity — documents sent by registered mail, conference calls — and long slogs of waiting.

We're in that state now. We've read the will. We've started to receive documents describing the assets in Dad's will and trust. We've also started receiving regularly updated time lines of milestones and deadlines.

Two years … and counting
The timeline goes into summer 2014, over two years after my father's death. Right now we're in the creditor period — 90 days when individuals and businesses can come forth to settle any debt my father had with them. (State requirements vary; rules about how to notify creditors in Florida are spelled out on a government website.)

We have a good idea of my dad's situation at the end of his life, and it's unlikely that an unexpected creditor will appear. Still, his health problems in his final years are a possible source; medical treatments at the end of his life were substantial.

So, for now, everything in the asset documents is hypothetical.

Be wary of making decisions with emotion
Still, I have a pretty good idea of the types of assets we're talking about, and, barring any surprises, what type of inheritance my siblings and I will receive.

And here is where an alarm sounds — an alarm grown from years of reading personal-finance books such as The Bogleheads Guide to Investing and listening to Dave Ramsey preach in his podcasts.

As a single mom with a moderate-paying job, I can say the last few years of day-care costs and health-insurance premiums have wrung me out. I live by a monthly written budget, and I can afford our life — and save for key goals — but I have almost no wiggle room. I use online calculators to figure out how much I will need to save for college for my son, and then I look at the balance in his fund, and my stomach turns over. I've saved extra for retirement since age 22, but my emergency fund takes a beating every time the car or house needs a repair.

This inheritance, while not changing my life completely, can certainly enhance it. The question is, how?

Take advantage of the wait
So here is where all those articles and books you're probably reading, too, become very, very relevant. When something like this happens — when you're emotionally compromised and potentially facing a windfall — it's critical to do two things:

  • Sit on the money for awhile. Let your feelings settle and your thoughts clear.
  • Have your goals in place.

The Bogleheads' Guide to Investing offers this in a chapter about managing a windfall successfully:

The emotions that accompany a windfall are temporary and usually go away within six months. The most important secret to preserving a windfall is to not touch it until the emotions subside and you come up with a sound plan for putting the money to work.

The authors offer exceptions, like paying off certain kinds of debt, but their advice is echoed by other financial experts — if you start spending and investing based on your emotions, you may end up with nothing to show for the gift.

Identifying values and goals pays off
In early 2011, I finally wrote down my family values and created goals tied into those values:

    I value constant learning, so I was going to find a way to fund part of my son's college education.

  • I value relationships with friends and family, so I was going to invite people over for dinner a couple of times a month (planning for the extra grocery budget accordingly).
  • I value self-reliance, so I was going to continue to put 15 percent of my gross income in retirement — even when it hurt.

Having those values and goals, among others, written down now gives me an emotional shortcut for what to do in the years to come when the estate is settled (finally). I can match my money management to my values.

I also know where my dad and I agreed, such as valuing my son's education and intellect, so I know, for example, I will prioritize saving for his college to honor my dad's values, too.

For most of my life, Dad and I didn't have a lot in common; I was raised by my mother after they divorced, and he didn't always agree with my choices, from the language I studied in high school (French!) to my college major or political opinions. Later in his life, he seemed pleased when I started a freelance writing career covering financial issues. The first time I mentioned financial guru Dave Ramsey to him, he chuckled. I'm sure he thought I was, eventually, becoming more like him.

Maybe I am. I do hope, in the end, I can make similar, smart money choices and good decisions about my own estate planning.

More about...Planning, Psychology

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Lance @ Money Life and More
Lance @ Money Life and More
8 years ago

Having a plan is a great tool for times when emotion may come in to play. I’m glad you looked back and decided to use these goals as some guidance. Savings for college is a great goal and hopefully it helps you out. It sounds like your dad would be proud of you for how you’re handling the situation!

Linda
Linda
8 years ago

We’ve had several posts about managing estates. But what happens when a parent dies and they have lots of debt?

My Mom has so much debt it’s unlikely she’ll pay it off in her lifetime. And she has no substantial savings. And (knock on wood) it should be many years before I have to deal this, but what happens to your parent’s debt when they die? And their medical bills?

There’s no way I’m getting any inheritance from my parents, I’m just worried about the financial mess I might be left with.

Patti
Patti
8 years ago
Reply to  Linda

I would also like more information about this topic! My parents haven’t revealed many details about their situation but I fear my much younger sister and I will be left with a similar situation. I’d love a reader story about how someone dealt with this issue.

(Also, there’s a typo in title)

Margaret
Margaret
8 years ago
Reply to  Linda

I’m fairly certain that you are not responsible for your parents debts. They cannot be transferred to you. So while the debts may eat up any inheritance you might have otherwise received, you won’t end up in financial mess because of their debts.

Unscrupulous credit card companies will try to collect from grieving relatives but you are under no obligation to pay.

Samantha
Samantha
8 years ago
Reply to  Linda

Agree. My parents are terrible money managers, with no retirement and plenty of debt. I’m a little worried about it – I know they don’t have wills, life insurance, or anything of the sort. What will my responsibility be in this situation?

getagrip
getagrip
8 years ago
Reply to  Linda

I would also like to hear something on this topic. From what I’ve read it depends on the type of debt, the funeral costs typically being paid first by the estate, then secured debt, then unsecured debt, then finally anything left over for the heirs. The problem usually is that the unsecured debt, being last in the debt line-up, gets passed to collection agencies who try to brow beat relatives who have no legal obligation (no matter what they say) into paying. Now if the nursing home is sueing you personally because of medicaid issues associated with gifts/money recieved during… Read more »

Holly@ClubThrifty
8 years ago
Reply to  getagrip

I work in the funeral industry and it is a common misconception that the funeral home will be paid by the estate. Most funeral homes require payment up front for services and are unable or unwilling to let people use their loved one’s estate to pay. My advice- make sure that your parents have some sort of plan in place to take care of funeral expenses- or plan on footing the bill. I have seen so many people totally shocked and surprised when they learn that they have to pay for their parent’s funeral. It can be very heartbreaking and… Read more »

Margaret
Margaret
8 years ago

Instead of being upset and stressed out, they can forgo a traditional funeral. My family has had at-home memorials and cremates our dead ever since my grandparents read “The American Way of Death.”

El Nerdo
El Nerdo
8 years ago

@Margaret Some years ago I saw a wonderful documentary about home funerals, but I’m of two minds about it. (it’s this one: http://www.pbs.org/pov/afamilyundertaking/ ) On the one hand, yes, how intimate and wonderful that you can wash and honor your dead and give them proper burial in your own plot. On the other hand, in this individualistic age, and without the help of a tribe around you, washing and burying your loved one’s corpse on your own seems like a horrible method of psychological torture. The traditions of honoring the dead and preparing it for burial or cremation are wonderful… Read more »

Babs
Babs
8 years ago

Cremation is available around here (Kansas City) for around $750. Memorial services can be held in private homes or parks for minimal cost.
The Department of Veterans Affairs is expanding cemetery space every day and many people are eligible.
http://www.cem.va.gov/cem/bbene/eligible.asp

I think that it is important for people to make their own final arrangements if they care how they want them carried out. I have seen family members override the wishes of the deceased and it did not have a thing to do with money.

Elizabeth
Elizabeth
8 years ago

I like how Jennifer is able to clearly articulate her values and put a plan into action. I hope I won’t need the information about settling a parent’s estate for a very long time, but I feel better informed about the topic now. Thank you!

Andrew
Andrew
8 years ago

Inheritances and parental debts aside, Medicaid planning for the elderly is a very complicated affair: there are basic Federal rules and additional state rules, which, of course, vary from state to state. In addition, the rules can change at any time, and the change can be retroactive (as when the 3-year look back period became 5 years)

It is easy to screw up planning and the penalties can be severe. I would love GRS to tackle this topic, but my advice in the meantime is to see, and follow the advice, of a competent elder-care attorney and/or innil planner.

WWII Kid
WWII Kid
8 years ago

I wish I could share this article with my sister, who is the Executrix of my mother’s estate. Unfortunately, she is one of those people who thinks she knows everything and you can’t tell her anything. Mom died in the summer of 2011. Her will provided that my sister has a life estate in my mother’s house (with mortgage) so long as she can afford to maintain it. She was also made Trustee of a trust funded by a $100,000 life insurance policy, the proceeds of which are to be used to maintain the house. If she cannot afford to… Read more »

elena
elena
8 years ago

When my aunt died, she left me a small cash bequest. Although there were many things I could have done with the cash to benefit me in the long run, I chose to honor her memory by taking my summer school classes to see a play at the local Shakespeare theater. My aunt, also an educator, took me to Shakespeare plays and would recite the lines along with the actors. It was a heady, amazing experience to do something like this with my students and their parents at least once and not have to worry about the money part. That… Read more »

SavvyFinancialLatina
SavvyFinancialLatina
8 years ago

Inheritances after parents die are a mess. I have seen some of my family distraught over who gets what. My parents don’t have a will, but they don’t have many assets, and don’t have any debt. I only have a younger sibling and we get along very well.
My in laws have everything settled which is good because my sister in law and hubby are like oil and water. Do not mix.

Me
Me
8 years ago

Liz Weston at MSN money writes about this topic often regarding parents and debts:

Will you get Dad’s nursing-home bills?
http://money.msn.com/retirement-plan/will-you-get-dads-nursing-home-bill-weston.aspx

When your parents die broke
http://money.msn.com/family-money/when-your-parents-die-broke-weston.aspx

I appreciate this post. I understand the author’s frustration that though she is doing everything right, she is treading water hard and getting no where. I am in the same situation.

Patti
Patti
8 years ago
Reply to  Me

Thanks for the links! Very helpful.

PB
PB
8 years ago

Over the course of my life I have received three inheritances. The first, from my grandmother, was when I was in my 30s, knee-deep in kids and expenses and a possibly terminally ill husband (he was allergic to the medicine that was keeping him alive — all resolved now). Anyhow, I made a lot of bad choices, but in the end had enough to put something into our retirement. Twenty years on, my MIL died. Very long sad story, but a lawsuit was involved. My husband received two insurance payments, as they did not have to go through probate, and… Read more »

Chris
Chris
8 years ago

I am an attorney and many of my clients who have lost a parent have this very concern. However, unless you cosigned for your parents debts, the debts are solely the liability of the estate. Once the estate is out of money, creditors get nothing. While a parent’s debts may chew up any potential inheritance, you don’t ever have to worry about “the sins of the father” haunting you.

chacha1
chacha1
8 years ago

I have really appreciated the articles on wills & estates and would like to see more.

If there’s one thing we can all be sure of, it is that *someone* in our lives is going to die before we do. Ignorance is costly.

Elizabeth
Elizabeth
8 years ago
Reply to  chacha1

And we’re going to leave someone behind…

I’ve appointed a beneficiary for all of my accounts and insurance, but I really need to sit down and put together a “if I get hit by a bus” spreadsheet.

fl librarian
fl librarian
8 years ago

My dad is relatively young, so my inheritance or lack thereof is likely many years in the future, but my history with him has some similarities – and so this story really resonated with me. Thanks so much for sharing!

DB
DB
8 years ago

When we had our first child, we started getting things in order “just in case.” Our top priority list includes: life insurance for both me and my husband (we already hvae a group policy through work but wanted additional coverage); up-to-date wills for both of us; a trust; and an “essential document locator” which our extended family has access to. I was not previously familiar with this concept – but the essential document locator is basically a summary document that lists where everything is (in the safe deposit box would be birth certificates, SS cards, etc), policy numbers for insurance,… Read more »

Michelle
Michelle
8 years ago
Reply to  DB

Yes, I second having a document that is devoted to indexing your various accounts, assets, passwords, liabilities, etc. When my grandfather died, my mom was still working on tracking down all of his accounts a year later. (And even then, she missed one. Thankfully, they found my mom almost two years after my grandfather’s death.)

Noxius
Noxius
8 years ago
Reply to  DB

All good ideas, but why a trust? Trusts generally complicate your life as many times they are not kept current. Who is the trustee and what additional oosts are associated with the trust and why are they necessary are just some of the questions that arise? There are a lot of law firms out there that peddle trusts to unsuspecting “victims.”

Jenna, Adaptu Community Manager
Jenna, Adaptu Community Manager
8 years ago

I like the idea of taking sometime to figure out what you want to do with the money. I also like the idea of honoring your father through shared goals, like your son’s education.

Bob J
Bob J
8 years ago

Expect the worst..hope for the best.

James
James
8 years ago

Hey Guys, One thing I’ll say to add to this conversation: Take as much out of the estate management process as possible. Its very difficult for heirs to keep emotion out of the situation when they are divvying up the inheritance – usually there are lots of subconscious expectations, as well as old sibling issues that get in the way. So, get everything planned out before your loved one passes away – be sure the expectations are clear and BE SURE TO HAVE A NEUTRAL OUTSIDE PARTY BE THE ESTATE EXECUTOR. That means, get a lawyer to do it, don’t… Read more »

Robert
Robert
8 years ago

This article is very timely. Just had a brief chance to glance at it and the comments. I feel lucky. I have passive income and make additional income wherever I have an Internet Connection. Over a year ago, my Dad asked me to consider moving in with them. The goal was to help them “age in place”. I have a younger sibling who is disabled and not able to participate in their care. By my choice I am an unpaid caregiver. And if things go South I do not expect an Inheritance of any sort. I have been living a… Read more »

Duncan @ CashFuturePayments
Duncan @ CashFuturePayments
6 years ago

Sounds like a solid plan for this kind of scenario. I know a lot of people would be tempted to immediately invest it or do something risky like starting a business. Those very well might be the best options for the money, but you need to be very careful with those decisions. Going and losing all the money would be a rather poor way to honor your loved one that passed away.

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