Estate Accounts: What You Need to Know
Experiencing the death of someone close can be stressful and emotional which is why the best time to start thinking about an estate account is before you need one. Whether you’re planning your own estate, a family member’s, or you’re a court officer or other fiduciary, there are some important things to consider if you’re interested in ensuring the proper distribution of assets according to the terms of a person’s trust or last will and testament.
Here’s what you need to know about estate accounts, or accounts that are set up to administer the finances of a person who has died.
Your first questions may be, “Why do we even need an estate account?” And “Can’t we just use a power of attorney or open a joint account?” In truth, an estate account is essential to the efficient, transparent settlement of an estate.
First, a power of attorney, which gives decision-making authority to a proxy, becomes invalid once a person dies. Gone with it is signing authority. And even if a spouse, child or custodian has opened a joint account prior to the decedent’s death, which affords joint signing authority, other beneficiaries are excluded but are still entitled to an impartial accounting of all assets.
The best way to do this is to transfer everything to an estate account that is managed by an executor who has a fiduciary duty to settle the estate fairly and according to the decedent’s wishes.
Who Controls the Money?
With an estate account there’s no confusion about who controls the assets. No one but the executor has signing authority on the account, which relieves family members of the temptation to access funds or make unauthorized deposits. Additionally – and this is key – an estate account ensures that all the decedent’s debts and taxes are settled within the estate . . . and don’t get passed to beneficiaries by accident!
Initially, an estate account may be used to settle debts and bills and to deposit outstanding income. Eventually it will be used to hold the proceeds of liquidated assets and ultimately to make disbursements to beneficiaries. Consequently, the executor needs to be able to make deposits . . . and write checks.
For these reasons and more, a key consideration in an estate account is its cash management strategy.
The Strategy Behind Estate Cash Management
Two important factors to consider, here, are rate of return and liquidity. The rate of return is important because one of a fiduciary’s main roles is to preserve the assets entrusted to the account. At worst, the fiduciary shouldn’t be speculating with assets in the account or subjecting them to unnecessary risk or devaluation.
This requires someone to manage the money, someone with a rigorous approach to cash management.
At Court Investment Services, we exist exclusively for this purpose – to help fiduciaries manage estate-held assets. Different from other financial advisors, CIS specializes in working with estate executors and attorneys, and our focused expertise saves clients both time and money. Our goal is to deliver a minimum, 1-percent return, annualized, after all costs, without locking cash into long-term commitments.
Our cash strategy focuses heavily on short-term U.S. Treasuries. As of June 20, 2018, the interest rate on a three-month T-bill was 1.94 percent and for six months was 2.14 percent. So there are other more attractive options than regular checking and savings accounts or illiquid CDs with early withdrawal penalties.
T-bills are extremely secure; they’re backed by the full faith and credit of the U.S. Government, making them even safer than the FDIC insurance that protects your savings account(capped at $250,000). Interest is exempt from state and local taxes. And contrary to common belief, they’re highly liquid and don’t impose withdrawal penalties or fees. In fact, funds from T-bills can be made available in as little as one business day. Most likely, however, you’ll need an advisor’s help to buy and sell them.
At CIS, we manage the Treasuries for you, actively rolling them into new securities as they mature – discretionary authority that other advisors might not have – which offers you the benefit of compounding, accrued interest. Consider all this against the returns currently paid by savings, checking and money market accounts – 0.2 percent approximately as of June 20, 2018 – or the liquidity issues presented by locking up money in long-term CDs – one year or five years, etc. – and you’ll note some advantages to hiring an estate account specialist like CIS.
From Frustrating to Refreshing: Working with CIS
Beyond helping clients earn a return that’s potentially five times greater, we also provide dedicated account service, assisting with reporting and satisfying court compliance. We keep assets safe while abiding by all court and probate code directives.
Banks and other investment advisors may lack the in-house talent or resources to devote to your specifics. But not CIS. At CIS, your account has a dedicated, licensed investment representative PLUS a dedicated relationship manager. This relationship manager will save you time and frustration which is priceless at a time such as this. There’s never any confusion about court account processing or paperwork. Everything can be handled via phone or email.
Before hiring a financial advisor, first consult with a trusted CPA or probate attorney that’s equipped to offer advice that may save you time, money and energy. If you have additional questions about estate accounts, cash management strategies, or better fulfilling your role as an executor or fiduciary, please contact us at (800) 880-2760 or contact@courtinvestmentservices.com.
