The main advantage of a private foundation over a public charity is that the donor, together with family or friends whom the donor selects, can control and directly carry out the foundation’s activities. Private foundations are the free agents of the charitable world, not answerable to large public memberships or required continuously to raise funds. Foundations generally have smaller staffs and lower operating costs than public charities.

      In general, charitable organizations are formed and run to qualify under the tax laws as charities or foundations. This enables contributions to be fully or partly tax deductible by donors, and funds used for the organization’s exempt purposes to be free of income tax. Section 509 of the Internal Revenue Code makes the statutory distinction between private foundations and public charities which are if you do not qualify as a public charity you are a private foundation. This difference is important because private foundation have much stronger rules against self dealing and mandatory distributions. They also have limits on deductible contributions and other excise taxes which can apply.

      There are basically two kinds of public charities: 1) organizations that engage in inherently public activities; and, 2) publicly supported organizations. Organizations that engage in inherently public activities are typically what one thinks of as charities such as hospitals, schools and churches. Publicly supported organizations are charities that normally receive a substantial part of their support from governmental units and/or from direct or indirect contributions from the general public. The “substantial part of support” requirement is met by satisfying a thirty-three and one third percent support test or, alternatively, a “facts and circumstances” ten percent test.

      To apply for recognition by the IRS of exempt status  an organization must prepare and submit a Form 1023, Application for Recognition of Exemption.  The IRS charges a user fee of: 1) $400 for organizations whose gross receipts do not exceed $10,000 or less annually over a 4-year period; and, 2) $850 for organizations whose gross receipts exceed $10,000 annually over a 4-year period.  This does not include the professional service fees paid to prepare and submit the Form 1023.

      Private foundations are subject to different tax rules and tax limits on contributions than public charities. These laws are intended to prevent private foundations from abusing their greater flexibility.

I. FORMING A PRIVATE FOUNDATION.

      A. Choosing the legal form

      Forming a private foundation requires action at both the state and federal levels. First, a not-for-profit entity must be formed under state law.  Second, the entity must apply to the Internal Revenue Service (“IRS”) for recognition of its tax-exempt status and for classification as a particular kind of foundation.

      Foundations are usually formed as either a trust or a corporation. A corporation’s chief advantage is that it provides somewhat greater protection from liability for the organization’s directors and officers because their decisions will be evaluated under the business judgment rule rather than more stringent fiduciary standards. In addition, change of management is less cumbersome in a corporation because the rules for changing directors are generally simpler than the rules applicable to successor trustees. Moreover, most potential directors will be more comfortable with the corporate than with the trust form and, therefore, more willing to serve as a director of a corporation rather than trustee of a trust. For these reasons, we encourage new charities to use the corporate form. In New York State, foundations are typically formed as not-for-profit corporations.

      A not-for-profit corporation cannot issue stock or have shareholders. A corporation can either have a self-perpetuating board or have a board elected by members (the not-for-profit equivalent of shareholders). While a non-member corporation is simpler to operate, membership can give the founder and the founder’s successor members control to appoint and remove directors. A corporation may hold its annual meeting in person, by phone, or the members (if any) and directors may act by unanimous written consent in lieu of a meeting.

      The trust’s chief advantage has traditionally been that it can be formed in a few hours without involvement of state officials. This advantage is less meaningful now that a not-for-profit corporation can be formed in Delaware immediately upon the facsimile filing of the required documents.

      Not-for-profit incorporation procedures vary from state to state. New York State may require incorporators to obtain government consents or waivers in advance of incorporation. As a result, not-for-profit incorporation in New York State generally takes two days if no consents or waivers are required but three to six weeks if they are. Consents or waivers are generally not required for a grant-making private foundation.

      There may also be non-legal reasons for forming a foundation in a particular state. For example, a foundation formed to aid New York charities may wish to show support for the state by making grants through a New York corporation.

      B. Defining the foundation’s charitable purposes

      In its certificate of incorporation, the foundation must define its purposes broadly enough to permit adjustment of its mission over time but narrowly enough to satisfy federal exemption and foundation rules. A foundation’s certificate generally recites all charitable purposes described in the federal tax law, as well as the ability to make grants in furtherance of those purposes. The IRS requires purposes that are exclusively religious, charitable (e.g., relief of the poor and needy), scientific, testing for public safety, literary, educational, fostering certain amateur sports, and preventing cruelty to children or animals. These are the so-called “501(c)(3)” purposes, which refers to the Internal Revenue Code provision where they are found. That provision authorizes organizations with these purposes to be exempt from federal income taxation.

      C. Applying for tax exemptions

      A foundation must apply for recognition of its exemption from federal income taxation by filing an application with the IRS. If the foundation files within twenty-seven months of incorporation, the IRS will grant exemption retroactive to the date of incorporation if no material changes are required. The IRS generally takes four months after the application is filed to issue the exemption letter or to ask supplemental questions. During this time, the foundation is free to conduct its regular activities. Some foundations may also qualify for exemption from certain federal excise taxes and for special postal rates.

      In addition, a foundation can apply for exemptions from state and local franchise taxes, real property taxes, rent taxes and sales taxes.

      Please contact our office if you need any help forming or operating your non-profit organization.

      D. Classification as a private foundation

      Confusion exists about what it means for an organization to be a foundation. As a practical matter, any not-for-profit organization, even a public charity, may use the word “foundation” in its name. Federal tax law, however, classifies as “private foundations” only those organizations that typically have three features: 1) a single major source of funding—usually gifts from one family or corporation, rather than funding from the general public, 2) a grant award program instead of direct operation of charitable programs, and 3) payment of grants and administrative expenses from the endowment rather than from the proceeds of a fundraising program.

      If an organization intends to have many sources of funding and an on-going fundraising program, it should consider seeking classification as a “public charity” rather than a private foundation. If an organization intends to support one or more identified public charities, it should consider seeking classification as a “supporting organization.”1

      In practice, private foundations generally fall into five categories:

      (1) Endowed private foundations. This is the most familiar type of private foundation and is usually funded by an individual or a family or a company.

      (2) Unendowed private foundations. This type of foundation has little or no endowment and usually receives its funding annually from its funder. Company foundations may fall in this category.

      (3) Pass-through or “conduit” foundations. This type of foundation is a short-term holding tank for certain charitable contributions. The donor’s contribution (and any income earned on it) must be passed-through within two and one-half months after the close of the year in which the contribution was made. A donor to a pass-through foundation is entitled to the more advantageous deduction limitations (see Section III below).

      (4) Pooled common funds. The donor and the donor’s spouse may retain the right annually to designate the recipients of income earned from the donor’s prior contributions. The recipients must be public charities. At the end of the donor’s or surviving spouse’s life the corpus goes to a charity that they have designated. A donor to a pooled common fund is entitled to the more advantageous deduction limitations (see Section III below).

      (5) Operating foundations. A private operating foundation is a private foundation that behaves like a public charity in that it runs its own charitable activities (e.g., a museum, library, or historic building) instead of making grants for charitable activities conducted by other organizations. A private operating foundation’s donors are entitled to the more advantageous deduction limitations (see Section III below).

      E. State registrations

      A foundation’s “home state” will generally require foundations to register with the state’s charities bureau. In New York State, oversight and registration are housed in the Attorney General’s Department of Law Charities Bureau. A foundation must qualify to do business in any state where it intends to have an office. If the foundation desires to become a service provider, it must obtain licenses from the departments of health, education or social services in the states where the services will be provided. A foundation should also consider obtaining trademark protection for its name, domain protection for its web address, and copyright protection for its publications.

II. CONTRIBUTING TO A PRIVATE FOUNDATION.

      A private foundation by definition is essentially a charitable organization which doesn’t meet the tax code definition of a public charity; it receives contributions from a limited number of sources such as a family, an individual or a corporation. Unlike public charities, private foundations are subject to tax on their net investment income at a rate of two percent (one percent in some cases). Private foundations also are subject to more restrictions on their activities than are public charities. For example, private foundations:

• Are prohibited from engaging in self-dealing transactions,
• Are required to make a minimum amount of charitable distributions each year,
• Are limited in the extent to which they may control a business,
• May not make speculative investments, and
• May not make certain expenditures.

      Violations of these rules result in excise taxes on the foundation and, in some cases, may result in excise taxes on the managers of the foundation.

      Contributions to private foundations generally are less tax advantageous than contributions to public charities. For example, contributions to a public charity generally are deductible up to 50% of an individual donor’s Adjusted Gross Income (AGI) or up to 30 % of AGI for capital gain property. Contributions to most private foundations, on the other hand, are generally deductible up to 30% of an individual donor’s AGI (or 20% for capital gain property.) In  addition, gifts of capital gain property to a public charity generally are deductible at the property’s fair market value, whereas gifts of capital gain property (other than certain publicly traded stock) to most private foundations are deductible at the taxpayer’s basis (cost) in the property.

III. OPERATING THE FOUNDATION.

      A. The private foundation excise taxes

      Except for the 2% tax on net investment income, the private foundation excise taxes discussed below are avoidable. Nevertheless, they cannot be ignored because they set the boundaries for all foundation operations. And, if incurred, these penalty taxes can be substantial and can be imposed on both the foundation and its managers.

      The donor generally will be deemed to be a substantial contributor to the foundation. Therefore, the donor’s dealings with the foundation will come under special scrutiny, as will those of other “disqualified persons.” In the case of a donor who is an individual, disqualified persons include the donor’s relatives (except siblings) and any corporation, trust, or partnership in which the donor directly or indirectly owns more than a 35% interest. Foundation managers (directors, officers, influential employees) and government officials are also disqualified persons subject to special scrutiny and penalties.

      Benefits to the donor or to any other disqualified person that are more than incidental and tenuous can trigger excise taxes. A benefit the IRS has held to be more than incidental and tenuous is displaying a foundation’s art collection in the donor’s home. Similarly, a foundation generally cannot buy, sell, or lease anything from a disqualified person without penalty. If a disqualified person directly or indirectly leases office space to the foundation, the space must be leased rent-free, or else both the disqualified person and the foundation can be subject to excise taxes. Naming the foundation after the donor is permissible, however, and does not trigger excise taxes.

      The specific excise taxes are described below but the rates may have changed as of the date of this writing (2011).

      (1) Excise tax on investment income. A private foundation is subject to a 2% tax on its net investment income. This is the only excise tax that is not avoidable. If the foundation donates a sufficient amount to qualified charities in a given year, it may be entitled to a rate reduction to 1% for that year.

      (2) Excise tax on self-dealing. Subject to certain exceptions, a private foundation cannot engage in any prohibited transactions with any disqualified person. Prohibited transactions include, but are not limited to, selling or leasing property, loaning assets, and furnishing goods, services, or use of the foundation’s facilities. An exception permits payment of reasonable compensation to a disqualified person only if (a) the compensation is for personal services actually rendered to the foundation and (b) the services are reasonable and necessary to the accomplishment of the foundation’s exempt purposes. Whether compensation is reasonable in amount is generally determined by reference to compensation paid to persons of like title and credentials in foundations of like size. Comparability information is published annually by the Council on Foundations and others. The self-dealing excise tax is levied on the disqualified person, not the foundation.

      (3) Excise tax on failure to distribute income. By the end of each fiscal year, a private foundation must make qualifying distributions in an amount equal to or greater than 5% of the aggregate fair market value of the foundation’s assets that are not used directly to carry out the foundation’s exempt purposes. Generally, grants to other private foundations do not count as qualifying distributions. The distributable amount for the next year is computed and reported annually to the IRS and the public on the foundation’s information return on IRS Form 990−PF.

      (4) Excise tax on excess business holdings. A private foundation may own the stock and securities of a business enterprise only up to a permitted level, which is generally 20% of a corporation’s voting stock less the amount of voting stock owned by the foundation’s disqualified persons and their families. Similar rules apply to ownership of other business interests. If an entity derives at least 95 percent of its gross income from passive sources, e.g., dividends and capital gains, it will not be a “business enterprise” for purposes of this provision and ownership limitations will not apply.

      (5) Excise tax on jeopardy investments. A private foundation cannot invest its funds in ways that could jeopardize the foundation’s ability to carry out its charitable purposes. Certain types of investments are subject to greater scrutiny, including trading in securities on margin, commodity futures, working interests in oil and gas wells, puts, calls, straddles, warrants, and selling short. An exception for program-related investments (“PRIs”) permits certain charitable investments without penalty.

      (6) Excise tax on taxable expenditures. A private foundation cannot make taxable expenditures. The term “taxable expenditures” includes payments for political campaigns and lobbying, and certain grants to individuals and to other private foundations or to non-U.S. charities. The law does contain an exception permitting distributions to another private foundation or to a non−U.S. charity but only if the distributing foundation monitors the grant. This monitoring process has four steps and is called “performing expenditure responsibility.” If the private foundation intends to make certain grants to individuals (e.g., scholarships, travel stipends, writing allowances), advance written approval of the selection procedures must be obtained from the IRS or the grants will be subject to tax. Initial grants to individuals and to organizations that are not U.S. public charities should be reviewed with counsel to make sure that they will be free from penalty taxes.

      B. Unrelated business income tax

      Like other organizations otherwise exempt from federal income tax, a private foundation is liable for the unrelated business income tax (“UBIT”) on its unrelated business taxable income (“UBTI”). A private foundation risks its tax exemption if it earns too much UBTI. Income in the form of dividends, interest, royalties, certain rents, and capital gains generally will be excluded from the computation of UBTI as long as that income is not earned from debt-financed property.

      C. Developing grant-making procedures

      Every private foundation should develop grant-making procedures to prevent federal excise-tax problems. For example, those procedures could address foreign grants, grants to individuals, program-related investments, and recordkeeping. Further, the persons handling grant-making must keep records showing the name of each grantee, its address, the exempt purpose of the grant, and the grantee’s tax classification (public charity, private foundation, or other). Grants to grantees other than U.S. public charities require performance of expenditure responsibility, IRS pre-approval, or other special documentation. Any new high-profile foundation will likely be inundated by grant requests as soon as its annual information return is available to the public (see www.Guidestar.org). Therefore, the directors and staff may desire quickly to develop and publicize application and funding guidelines. Some foundations choose to post this information on a website.

      D. Considering an advisory board

      The directors may wish to form an advisory board to advise them on grant-making matters. An advisory board lacks authority to govern the foundation or to bind it in legal or financial matters. Two alternatives to an advisory board are to consult informally with outside experts or to retain advisors as consultants.

      E. Governance

The directors may wish to adopt policies on conflicts of interest, meeting attendance, reimbursement of expenses or other matters.

      F. Campaign intervention

      A foundation is not permitted to endorse candidates in any (even local) elections or otherwise intervene or participate in any campaign for public office.

      G. Compensation and other expenses

      No part of the net earnings of an exempt organization may inure to the benefit of any individual. However a foundation may pay reasonable compensation for personal services rendered by employees, consultants and others.

      Directors of charitable organizations generally serve without compensation. However, charitable organizations often pay the premiums for directors’ and officers’ liability insurance and reimburse directors and officers for reasonable out-of-pocket expenses.

      Federal law requires that the salaries and benefits of the foundation’s highest-paid employees and all directors and officers be available to the public on the foundation’s annual information return. Journalists are increasingly interested in obtaining and publishing these figures.

      H. Buying insurance

      Foundations generally purchase general liability and property insurance if they have employees and maintain a separate office. Many also purchase liability insurance for directors and officers. While directors and officers are generally protected by state laws so long as they do not breach their duties of care and loyalty to the foundation, insurance can cover legal expenses directors may incur in proving that a plaintiff has no right to sue or has an invalid claim against them.

      I. Employment issues

      A foundation must obtain an employer identification number (“EIN”) from the IRS even if it has no employees. Like any other employer, a foundation must comply with federal, state and local employment laws. These include withholding federal and state income tax from wages and making the necessary contributions for FICA, FUTA and state unemployment insurance, as well as statutory disability and workers’ compensation payments. The foundation will also have to consider providing its employees with medical, life and other insurance and benefits such as pension contributions.

        J. Annual filings

A foundation must make quarterly estimated payments on its 2% net investment tax liability and must file an annual federal information return or IRS Form 990-PF. Penalties may apply if any return is not timely filed. Federal and state laws may require that a private foundation file its annual return or state forms with officials of (i) each state in which the foundation reports in any fashion concerning its organization, assets, or activities, or in which the organization has registered as a charitable organization to solicit contributions from the public, or as a holder of charitable assets; (ii) the state in which its principal office is located; and (iii) the state in which it was incorporated. In addition, if a foundation has UBTI, it may have to file a federal tax return on IRS Form 990-T and a state tax return, and pay estimated tax on the income. These filing obligations should be reviewed with the foundation’s accountants.

      K. Inspection requirements

      A private foundation is required to make available at its office or an agent’s office or send copies (where costs are prepaid) to anyone requesting the foundation’s annual information return on IRS Form 990-PF or the foundation’s application for exemption on IRS Form 1023. In the alternative, the foundation may satisfy its disclosure obligations by posting these forms on its own or another’s website.

IRS Form 1023: What’s Required

Form 1023 is made up of eleven parts as follows:

• Part I. Identification of Applicant: This part is self-explanatory. It asks for basic information about your nonprofit; fill in the organization’s name, mailing address, Employer Identification Number, and other relevant information.
• Part II. Organizational Structure: Here you identify how your organization is set up (corporation, limited liability company, unincorporated association, or trust) and provide supporting documents.
• Part III. Required Provisions in Your Organizing Document: When you wrote the articles of incorporation (see Chapter 5), you (hopefully) included two specific clauses to comply with IRS requirements. You will need to refer to those clauses that (1) define the purpose of your nonprofit, and (2) outline what happens to excess funds (those remaining after all the bills are paid) when the organization closes.
• Part IV. Narrative Description of Your Activities: Here you write a description of your organization’s activities.
• Part V. Compensation and Other Financial Arrangements with Your Officers, Directors, Trustees, Employees, and Independent Contractors: If you are paying anyone for services directly related to the operation of your organization, identify them here and give details of their compensation.
• Part VI. Your Members and Other Individuals and Organizations That Receive Benefits from You: This part contains a series of three yes or no questions.
• Part VII. Your History: There are two yes or no questions in this part.
• Part VIII. Your Specific Activities: This series of questions asks you to go into detail about how your nonprofit operates.
• Part IX. Financial Data: This chart asks you to outline your finances for the current tax year and the three previous years. If your nonprofit was formed within that time frame, you must make good-faith estimates regarding your future budget.
• Part X. Public Charity Status: This part defines your nonprofit as a private foundation or a public charity.
• Part XI. User Fee Information: This section determines your fee for submitting Form 1023.

In addition, there are eight schedules. You will only have to complete the one(s) that apply to your nonprofit.

Schedules

• Schedule A. Churches
• Schedule B. Schools, Colleges, and Universities
• Schedule C. Hospitals and Medical Research Organizations
• Schedule D. Section 509(a)(3) Supporting Organizations
• Schedule E. Organizations Not Filing Form 1023 Within 27 Months of Formation
• Schedule F. Homes for the Elderly or Handicapped and Low-Income Housing
• Schedule G. Successors to Other Organizations
• Schedule H. Organizations Providing Scholarships, Fellowships, Educational Loans, or Other Educational Grants to Individuals and Private Foundations Requesting Advance Approval of Individual Grant Procedures

However, once certain thresholds are met, the amounts you can save this upcoming year on a tax-advantaged basis increase. Here’s what you need to know for 2012.

Elective Contributions to IRAs, 401(k)s and Other Qualified Plans

• Elective deferral contribution limits to 401(k), 403(b) and 457(b) have increased to $17,000, up from $16,500 – the rate that had been in effect since 2009.
• Catch up contributions for those aged 50 and above remains at $5,500.
• Traditional IRA contributions, for participants in employer plans, are phased out as follows:
• For single filers and heads of households who have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 to $66,000 which had been in effect since 2009.
• For married couples filing jointly, in which the spouse who makes the contribution is covered by his/her employer’s plan, the phase-out range is $92,000-$112,000, again up $2000 on each end of the spectrum from 2011.
• For a married taxpayer who is not an active participant in an employer plan, but is married to someone who is, the deduction for an IRA contribution is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000 in 2011.
• Roth IRA contribution phase-out limits also have some changes:
• For single filers, and heads of households, the income phase-out range is $110,00 to $125,000 up from $107,000 to $122,000 in 2011.
• For married couples filing jointly, the AGI phase-out range is $173,000 to $183,000 for 2012, up from $169,000 to $179,000.
• For married individuals who file separately and participate in an employer sponsored plan, the phase-out range remains $0-$10,000.

Benefit Plan Contribution Limits: These limits remain unchanged from 2010, as follows:

• The total amount by which an individual’s individual account pension plans, through both employee and employer contributions, remains as the lesser of 25% of the employee’s total compensation, or $50,000, which is up from $49,000 for 2011.
• The annual benefit limit for defined benefit pension plans increases from $195,000 to $200,000.

Other benefit plan limits to note include:

• The minimum earnings threshold for eligibility for participation in a Simplified Employee Pension (SEP) remains unchanged at $550.
• The limitation for SIMPLE retirement accounts remains unchanged at $11,500.
• The maximum annual compensation that can be taken into account for retirement plan purposes is increased from $245,000 to $250,000.
• The compensation threshold for determining a highly compensated employee (HCE) has increased to $115,000 from $110,000.
• Like 401(k) plans, the maximum deferral for participants in the Federal government’s Thrift Savings Plans, and Tax Sheltered Annuities is increased from $16,500 to $17,000.

These figures are issued annually by the IRS, this year published on October 20, 2011. Other changes not covered here include: limitation on maximum account balances in ESOPs (Employee Stock Ownership Plans), fringe benefits paid to “control employees,” savings contribution credits for lower income taxpayers and special elections for single employer plans.

Please feel free to contact us if you have any questions or concerns about taxes and your retirement savings.

When someone dies, aside from the eventuality of getting your lawyer involved to handle the estate administration, there are practical realities of the death itself, and arrangements to be made from the time of the death, through burial and beyond. In my experience, most of the state law protocols are similar, even if they have different rules concerning how to file a petition, admit an estate for probate, or the time limits on creditor claims.

Here I’ve classified the post-death concerns into three segments.

• The first covers the actual death, through the funeral arrangements – the initial shock phase.
• The second phase, which begins after the funeral, covers getting organized or “the lay of the land” as I call it. If you were a baker, you’d have to have the ingredients in hand before you start the process. That’s a good analogy for phase II.
• In the third phase, you enlist the help of a seasoned professional, likely an attorney, to shepherd the decedent’s estate through probate (if the decedent had a will) or through the jurisdiction’s estate administration process for intestacy – i.e., people who die without a will.

Most jurisdictions have a simplified procedure for decedents who have small estates, with or without a will. If no last will and testament is found, generally a family member in closest relationship of lineage to the decedent is appointed to shepherd the intestate estate administration. If there is no will, state law will determine how the decedent’s assets are distributed.

POST Death – PHASE I – Funeral Arrangements

Call 911. For starters, with respect to the death itself, if your loved one dies at home, call 911 or the Coroner’s Office in the county where you live. The deceased’s body must be picked up eventually through the funeral home, or hospital if organs are to be donated. Decisions regarding burial or cremation may have to be made, and a search should be made of the decedent’s personal papers to determine wishes/instructions.

Funeral Arrangements. Often it’s good to be accompanied by another family member or trusted friend to make arrangements, because you may be in a state of shock or hopeless overwhelm. I’d recommend contacting three funeral homes or mortuaries to determine rates, particulars, etc. The rates can vary wildly in the same geographic area, and these fees are often negotiable. While I’m not recommending you hunt for bargains, I am suggesting you not be gouged at a time when you are emotionally distraught.

In some jurisdictions public assistance may be available for funeral arrangements, or the decedent may have already purchased a package from a religious society or similar group which provides benefits or actual services/burial plot. If the decedent is a veteran or in the military, or the child, spouse or dependent of a member of the military, there is likely a VA benefit available for burial/funeral arrangements upon request.

Guard Decedent’s Property/Communications. When a death is announced in an obituary column, you’re putting the world on notice that a person has died and it’s important to guard against break-ins that may occur when the family is at the funeral. The decedent’s perishable property or property at risk must be specially protected. For example:

• If desired, publish an obituary.
• Check the decedent’s house and make sure house is secured, especially during the funeral or wake!
• If you are unsure whether outsiders (cleaning folks, caretakers, etc.) have keys or alarm codes, change them so you can make sure you know who is authorized. They will contact you if they can’t get in. Contact neighbors if they may have information.

Get Multiple Copies of Death Certificates. As part of estate administration copies of the death certificate is needed for many purposes. For example, it must be submitted as part of any federal or state estate tax return, to claim life insurance benefits and any employee benefits/pensions owned by the decedent. The number of original death certificates you’ll need depends on the nature and complexity of what the decedent owns, and how many agencies, businesses, former employers, insurance companies will request them. It’s a good idea to get at least 5-10 and more can be procured later. In some jurisdictions the cost is less if they are obtained at the outset from the funeral director or coroner’s office.

Post Death Phase II – Gathering Information

Make a List. To make sure you’ve got everything prepared to delve into estate administration, you need to get an idea of what you have to get in order. A truly organized decedent has left a list of all important documents, locations, and they are easily retrievable by next of kin or trusted friends in a nice tidy folder that says “open when I die.” Since this is rare in reality, most likely it will be up to you to get the lay of the land. Following is a list of items you may want to address sooner rather than later:

• Forward the mail.
• Contact the decedent’s employer, as applicable.
• Read the mail that comes in so you’ll be able to expand the list of who to contact.
• Discontinue unneeded services related to decedent’s home. For example, discontinue telephone, cable, internet; continue utility services.
• Formulate list of decedent’s advisors (accountant, attorney, broker, etc.)
• Stop subscriptions.
• Stop credit cards.
• If applicable, determine if decedent has internet use/accounts requiring passwords and getting access to those online accounts to discontinue or monitor, as needed.
• Discontinue government benefits such as social security, etc. Benefits will only be paid until date of death and overages must be repaid.
• Prepare list of names for monthly benefit items such as: pensions, IRA distributions, annuities.
• Create a list of accounts from bank, brokerage, investment account statements.
• Compile contact information for decedent’s attorney, accountant, investment advisors, insurance brokers. Contact executor/trustees or others who will be responsible for estate administration if known or named in testamentary documents.
• If no testamentary documents are found, determine if decedent had a “family” attorney or filed a will with a local government (county) which may permit such practices.
• Locate safe deposit box.
• Obtain claim forms for any outstanding benefits or insurance which decedent owned or in which he had an interest.
• Contact major credit bureaus to report the death to protect against fraudulent post-death transactions. (Equifax (888) 766-0008, Experian (888) 397-3742, TransUnion (800) 680-7289).

Review Incoming Mail. This will provide a lot of information as to who the decedent had business or other interactions with that may have a bearing on the estate.

• Send change of address forms, as necessary.
• Determine contacts who may be relevant for purposes of starting or stopping any benefits or services.
• Beware of fraudulent invoices that may be attempted once notice of death is published. When you review incoming mail, you’ll get an idea of credit card payees. Make a list of the credit cards/outstanding balances.
• Formulate list of vendors who the decedent may owe money and who may owe money to the decedent.

Locate Legal Documents and Important Papers. As you begin looking through the decedent’s belongings, keep hold of any of the following documents which will be needed.

• Locate the decedent’s important papers:
  • Last will and testament
  • Trusts, if any
  • Other estate planning documents
  • Marital certificates, divorce papers, birth certificate, social security card and other legal documents which have a bearing on the estate and beneficiaries.
  • Mortgages and deed/title to real estate, if applicable
  • Loan documents
  • Military discharge papers

• Secure automobile owned by decedent and locate insurance policy

DO NOT TRANSFER TITLE TO ASSETS OR MAKE ANY DISTRIBUTIONS OF ANY KIND TO ANYONE WITHOUT CONSULTING AN ATTORNEY!

Phase III – Launching Estate Administration

To launch estate administration, you need to appoint a personal representative, identify the estate assets and be prepared to deal with government agencies, such as the IRS, Veteran’s Administration and Social Security Administration to finalize accounts on behalf of the decedent. Depending on the nature and extent of the decedent’s assets, there may be issues as to “cash needs” during the period of administration and availability of assets that affected survivors need to live on. These will be the initial concerns of the personal administrator.

Following is a list of items which impact this process:

• Final wages owed the decedent which may include:
  • Accrued vacation, sick days
  • Compensation per employment agreements
  • Unemployment or disability benefits

• Medical bills outstanding and payments due from insurers, Medicare, Medicaid and workers compensation claims or disability policies.
• Debts which may be due to or owed by the decedent. Also consider assets that may be encumbered by debt (e.g. home mortgage.)
• Death benefits

Begin to inventory major estate assets including:

• Homes
• Investments
• Business interests
• Artwork/Collections
• Trusts

As the process begins, the personal representative should open a new checking account in the name of the estate which is used to receive decedent’s assets, sell securities, pay debts and administration expenses, insure the family cash needs (e.g. for spouse and children if applicable) are available to them and to distribute assets.

If you have any questions or concerns, and I can be of assistance, please contact me in New York at (914) 923-1600 or in Florida at (561) 625-9946.

To fully appreciate this government largesse, let’s put it in perspective. Prior to 2011, under previous versions of the same “unified” system, the top estate tax rate was 55% and the maximum exemption was $3.5 million. When these generous provisions sunset at the end of 2012, like Cinderella finding a pumpkin instead of a carriage at midnight, we’ll be left with a $1million per individual exemption and 55% estate tax rate.

Get Your Affairs in Order Now
So Your Loved Ones Have an Easier Time

If you think your estate may come near the million dollar mark, the time to plan is now. If you’ve been putting off writing a will, or signing a health care proxy or even giving a trusted friend or relative the right to make financial decisions for you if you become mentally disabled – take the time now to get your papers in order.

A lawyer colleague of mine, now in his seventh decade, was recently asked by his wife what she would do if something happened to him. He joked that she’d get everything anyhow. But her real concern, aside from the loss of her husband of 50 years, was how she’d track down where “everything was” that she needed to know about.

If you don’t get your affairs in order now, odds are you may leave your family with more difficulties than just the loss of you. How will anyone know that you have the safe deposit box key stashed in your tool box in the back shed, or that there is a stash of “survival cash” in a shirt box in your closet or that you actually did buy some term life policies in case you don’t make it through your kids’ college years.

I recently heard about a family who discovered their aging father had continued to pay for senior living expenses – having forgotten he’d purchased a long term care policy years earlier which would’ve covered the costs. After the fellow died, his family discovered the policy but it was too late to collect to collect on it. What a waste of resources!
It’s not that tough to get the important stuff together; it’s a lot easier than leaving a mess behind for a loved one to deal with. Take an inventory of what they’ll need to know – assembling the following (and letting them know where to find the list!) is a good place to start:

• Where your will or other testamentary documents (trusts, are (if you have them.)
•  The attorney, accountant, insurance broker and/or investment advisor who handles your business
• Location and identifying information of:
• Bank accounts
• Credit cards
• Outstanding loans
• Mortgages/home equity lines
• Retirement accounts
• Life insurance policies
• Cemetery plots or deeds
• A list of what you own (collections, art work etc.) that’s valuable – worth e.g. more than $1,000.
• Any documents of title concerning assets you own such as the deed to your home or title to your car.
• Insurance policies that you maintain on your life or anything you own.
• Identification of any documents where you are named beneficiary such as retirement plans, insurance policies or trust agreements.
• Documents pertaining to the following:
• Real estate deeds
• Tax returns
• Gifts made/gift tax returns filed
• Employee benefit statements
• Marriage certificates
• Divorce decrees/separation agreements
• Citizenship papers
• Adoption agreements
• Birth certificates
• Military discharge/veterans paperwork
• Loan agreements
• Business agreements
• Trust documents
• Partnership papers

Feel free to contact our office if we can help you get some of your back story and paperwork in order.