Edition: U.S. / Global

After the Funeral, Overseeing the Estate Brings New Woes

Published: September 29, 1996

FOR several years, Jerrie Taylor and Joan McGarry had what was possibly the worst job in California. They administered the estate of Ms. McGarry's former companion, a man who in his later years, according to Ms. Taylor, kept his business to himself, holed up in a house surrounded by old car bodies. For most of that time, she said, he did not pay taxes.

''Gordon left something he thought was a will, but of course it wasn't,'' said Ms. Taylor, who used to work as a legal secretary and ran a dance studio in Santa Barbara. ''It was just some scribbled stuff.''

The ''scribbled stuff'' had at one point named Ms. McGarry to take care of the estate. And both she and Ms. Taylor knew the man's elderly mother and wanted to help her, so they offered to take charge. The probate court named them administrators.

Night after night they rummaged through boxes of unopened mail -- some of it dating back 15 years -- in the mother's mobile home, trying to figure out his finances. Soon, the lawyer they hired was gone, having been indicted on an embezzlement charge in another case. Then, someone they didn't know showed up in town, asked Ms. Taylor to meet him at Kinko's, and explained over the copying machine that the deceased owed him thousands of dollars. A lawsuit followed, costing the estate roughly $75,000 in legal fees -- which the estate had to borrow to cover.

Now, Ms. Taylor's advice to would-be executors is ''never, never do this.''

Many people, no matter how much easier their experience, say the same thing. (Dickens's ''Bleak House,'' after all, was about an estate.) Still, someone has to marshal assets, pay debts and taxes, and then distribute what is left. And that someone, especially when administering a parent or spouse's estate, generally has deep interests in making sure the job is done with loyalty and care and a minimum loss of cash.

The tasks can take hours, weeks or even months longer than expected. Disputes can spring from nowhere, and personal relationships are tested. And for all the agony of settling the estate, the executor is legally accountable -- sometimes under penalty of being held personally liable for losses.

''It's hard, especially when the child has to do it,'' said Michael D. Assaf, an Albany lawyer who does estate work and has confronted it on a personal level since his father died in July. ''To look through the files and see my father's handwriting and know that I'll never get a note from him again is very hard,'' he said. ''You just have to set aside the personal devastation.''

Almost always, a will names an executor to administer estates. If there is no will, a court appoints someone, who is called the administrator of the estate. The duties are effectively the same, though the executor carries out the terms of the will while the administrator follows the state's rules as to who gets the assets. Professionals in estate work often prefer the term ''personal representative,'' which applies to either.

The job can be refused, and should be if the candidate does not get along well with a beneficiary -- typically, a case of adult sibling rivalry -- or cannot spare the time or is, as Mary Lou Parker, an estate lawyer in Morristown, N.J., put it, ''the sort of person who never cares if his checkbook balances.''

THE executor need not be a relative or lawyer or even a person: many people name banks or trust companies as executors or as co-executors with a relative. And an individual can turn over much of the work to lawyers, accountants and bankers.

But the executor is ultimately responsible for their work. And it is the executor who usually does the small but perplexing chores like finding the duplicate car keys and having the stamp collection appraised.

Beginning with funeral expenses, the executor must record every dime spent and collected for the estate. Most people open a checking account just for that purpose.

As soon as is practical, the executor starts to marshal assets -- finding them, gathering account numbers and statements, setting up an inventory of personal property. Early estimates of the estate's value, along with documentation, will be crucial if there are tax complications. The executor should also determine whether there is property in two states, which means two sets of laws and, possibly, two court proceedings.

Although the death of Mr. Assaf's father was unexpected, he had left a ''road map'' explaining where his assets and investments were. ''My father was a genius with these things,'' Mr. Assaf said.

Many people aren't, though, and most do not heed well-worn advice to save their survivors a lot of money and trouble by putting together a good estate plan -- or even to save them from panic by making a list of accounts, investments and property.

Mr. Assaf noted that the executor must also ''determine whether the survivors need money right away.''

''You have to focus on who's left behind,'' he said, ''and you can't have the surviving spouse or the heirs whom the decedent supported in his lifetime filing for bankruptcy.'' That often means collecting life insurance or death benefits quickly.

The next step is determining whether probate is necessary. Essentially, probate is court oversight of the collection and distribution of assets, and is required only for property owned solely by the deceased. Assets that are owned jointly (often, real estate and bank accounts) or are payable to a named beneficiary (life insurance, trusts or retirement funds) almost always pass automatically to the co-owner or beneficiary.

Most estates have both probate and nonprobate assets. Some, even very big estates, have been set up entirely in trusts and other nonprobate assets -- in which case the executor may help distribute them but otherwise has little more to do. If the probate assets are modest, the estate may qualify for expedited procedures under small-estate exceptions. In New York and New Jersey, the limit for such exceptions is $10,000.

ADVICE on getting around the process abounds. Norman F. Dacey's ''How to Avoid Probate!'' (HarperCollins) is in its fifth edition. But estate experts point out that court costs are minor -- generally, a few hundred dollars -- if the will is uncontested.

''People say, 'I should avoid probate, it's a terrible, onerous experience,' '' Mr. Assaf said. ''But it really isn't. If all the relatives are in agreement, it's not a problem. If they're not, it can be an absolute nightmare.

''I did an estate in Nassau County, and these people dropped a ton of money on me,'' he said. ''I kept saying, 'The meter is running; what are you doing?' So if you have contentious relatives, do whatever you can to avoid probate. Anybody can dream up an objection to the will.''

To open probate, the will must be filed with the court, usually within 30 days of the death. When there is no will -- and in more than half the cases entering probate there isn't -- the court requires the death certificate and verification of the survivors' status. Either way, the court authorizes an executor or administrator to deal on the estate's behalf with the rest of the world.

Many executors slog through probate with a lawyer and a financial adviser, whose fees, together, commonly eat up 5 to 10 percent of an estate's assets. A bank or trust company generally charges about 1 percent of the value of the assets it manages. Some lawyers work on a percentage basis, too, depending on state law.

But ''any executor who's on the ball can negotiate an hourly fee basis, and in an estate of $100,000 or upwards will probably come out ahead,'' said Leigh W. Bauer, an estate lawyer in Philadelphia. ''You take an estate of $2 million or $3 million, and absent family fighting or crazy limited partnerships that take a lot of undoing,'' he said, ''there isn't a lot more work in administering it than there is with a small estate.''

But the little things can be the most troublesome; it is easier to value and sell securities than the contents of the attic. In any case, beneficiaries should be informed.

''Everything you do can and will be second-guessed,'' said Michael J. Mullaugh, first vice president and manager of the estate settlement unit at Mellon Private Asset Management in Pittsburgh. ''You might say, 'Well, we have a 1990 Buick here that we're inclined to have sold through so-and-so's auto auction.' Somebody will say, 'No, that's not the way to sell it.' You hope, after a couple of discussions of this type, that you begin to be trusted.''

Jean Maffucci of Somesville, Me., estimated that she spent 150 to 200 hours over six months as co-executor of a longtime friend's estate, which was rich in art and antiques. Her friend tried to warn her, Ms. Maffucci said: ''I'd be at her house and she would say, 'I want to go over these things with you.' But I didn't want to talk about it -- she was living; she was fine.''

When her friend died last year, Ms. Maffucci, who lived in Westchester County at the time, collected names of people in the Oriental rug business and eventually received a six-page appraisal for $400. She asked a jeweler to inspect the diamond rings and called three liquidators for bids on selling the household goods.

''You have to make sure you're getting top dollar because the heirs come back at you,'' she explained. ''It's their right to come back at you.''

Personal effects can also generate bitter fights. One of the oddest disputes concerned 15 vials of deposits in a Los Angeles sperm bank, which were given to a decedent's girlfriend in a will contested by his grown children. The girlfriend won.

Other assets can generate more expensive fighting, especially when their value falls.

''Say you sat on a stock for a year and its value dropped from $1 million to $100,000,'' said Charles K. Plotnick, a lawyer in Jenkintown, Pa., and co-author of ''How to Settle an Estate'' (Consumer Reports Books, 1991). ''That should be actionable.''

Nor can blame always be passed to a lawyer or other agent who gave bad advice. An elderly widow who hired an incompetent lawyer might not be held liable for a mess that he caused, Mr. Plotnick said, ''but what if it's a young, sharp, vital widow whose boyfriend of the moment happens to be a lawyer?''

Then there are the creditors. Ordinarily, settling debts begins with newspaper publication of notices that probate has begun. Depending on the state, creditors have 90 days to a year to come forward.

A CREDITOR'S claim was the biggest jolt for Ms. Taylor and Ms. McGarry.

''This man came down from the mountains'' in Santa Cruz County, Ms. Taylor said, and presented a letter from the deceased that promised him $4,000 a month for working on a property he owned there. ''It was like the worst movie you ever saw.''

The matter was dismissed for failure to file the claim in time; the court never ruled on whether it was valid.

The most important creditor is usually the government. The Federal estate tax applies to estates with a net value exceeding $600,000, although an estate of any size can pass to the surviving spouse tax-free. The tax is levied on total assets, including jointly owned property, life insurance proceeds and interest in community property. The return and payment are due nine months after death.

In addition, most states charge an estate tax or an inheritance tax, paid by beneficiaries. Taxes are also due on the deceased's last income and on income the estate has received.

Back taxes can present a problem, too. Ms. Taylor and Ms. McGarry had to file and pay 10 to 15 years' worth. Ms. Parker, the Morristown lawyer, noted that elderly and ill people often had trouble with tax returns. ''Take the effort to piece together the information and make sure the person satisfied all tax obligations,'' she said.

For Federal estate tax purposes, the filing deadline is also the deadline for exercising an important option for large estates: the disclaimer. This is available to the primary heir, usually the surviving spouse, who can turn down part of the inheritance so it can go to the next in line, often the children. Those assets are protected from estate taxes when the primary heir dies.

''It's the thing most often overlooked,'' Mr. Bauer said. ''This limited planning that you can do after death can save you $200,000 in the first three minutes of conversation.''

Once tax returns are accepted by tax authorities, distributions can be calculated. Sometimes beneficiaries need earlier distributions, and in some states are entitled to them, but the executor should know the tax consequences. If the estate comes up short, the executor will have to recover money, which is why anyone receiving an early payment should be asked to sign a receipt acknowledging that they may have to return some of the money.

Among the last expenses is the executor's fee, which is often established by state law. An executor who is the estate's principal or sole beneficiary may waive the fee rather than pay income tax on it. For others, the fee is usually small recompense. Ms. McGarry and Ms. Taylor, for example, collected theirs when the estate closed last winter, after more than four years' work. Each received $5,000.

Estate Planning, for Executors

Here is a a checklist of responsibilities for the executor of an estate. The list will be longer for some and shorter for others -- and can be much shorter if an estate does not have to go through probate court. Some requirements vary according to state law.

* Order death certificates. You will need copies for banks, the post office, insurers and others.

* Find the will. If the will is in a safe deposit box, you may need court permission to gain access. Distribute copies to beneficiaries.

* Consult a lawyer. Other professionals, especially tax accountants, can also be helpful before distributions are made.

* Make notifications. Ask the post office to have all mail forwarded to executor. Notify life insurance agents, the Social Security Administration and the Veterans Administration, if applicable, and other potential sources of death benefits, including former employers.

* Begin to marshal assets. Gather bank and brokerage statements from at least the previous three years. Make a preliminary estimate of the value of real estate and personal property, and of the estate's total value.

* Assess survivors' immediate cash needs. If the surviving spouse, for example, needs money for living expenses, you can help collect nonprobate assets like life insurance proceeds.

* Make any payments necessary to avoid default. These often include a home mortgage, but check other loan obligations. Make sure that insurance on home and personal property is adequate.

* Apply to probate court. The court procedures will vary depending on whether there was a will; you should register the will even if you aren't sure probate will be required.

* Proceed with accounting. Compile a list of assets and property for the court, and obtain appraisals if necessary; record every expenditure.

* Pay creditors. Put legal notices in newspapers. Tell creditors personally if any payments will be delayed.

* Remember tax returns. Collect past returns; make sure there are no outstanding obligations. File current returns.

Photo: Joan McGarry, left, and Jerrie Taylor administered the estate of Ms. McGarry's friend. (Santa Barbara News Press/Scott Draper)