There are three ways in which a personal representative of an estate is appointed:

1. A personal representative can be appointed by a will of a testator, who designates one or more people to serve as Executor.
2. The beneficiaries under  a will can choose someone as personal representative if the decedent died intestate (without a valid will), the will does not name an Executor, or the Executor named in the will is unable or unwilling to serve as personal representative.
3. A court can appoint a personal representative if the beneficiaries under a will cannot agree on a personal representative.

The appointment of a personal representative by the testator or by agreement of the heirs or beneficiaries is not effective unless and until an order is signed by the court.

The court order serves as the official appointment and allows the personal representative to receive letters testamentary or letters of administration from the clerk in order to proceed with the administration of the estate.

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While doing some research recently, I came across an MSN Money quiz that tests whether one has enough knowledge to prepare his or her own will. The average MSN Money reader scored a 52 out 100, a failing grade.

Take the test here, and let me know how you did. (Hints: The Texas rule may differ from the general rule. Use last year’s exemption amounts.)

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NB: A version of this post was published in a recent e-newsletter. It got such a positive response, I thought I’d publish it here as well.

When discussing factors to consider when selecting a guardian, I wrote that it is your responsibility to ensure that a guardian has the financial means necessary to support your children in the event the unthinkable happens.

Typically, the assets you leave behind can be used to reimburse the guardian for expenses incurred, but life insurance can be an important tool to help you supplement your acquired assets and protect those who financially rely on you and would be affected by your death.

However determining which type of policy is right for you, how much insurance you should have, and which insurance companies are highly rated can get a bit overwhelming. So how do you make this important decision? Below are some objective sources you can turn to for help in choosing the right policy at the best price.

Independent Online Guides For Choosing Life Insurance

MSN Money’s 5 Minute Guide to Life Insurance is a resource that contains helpful tips aimed at helping you pick the right policy without spending too much. Of particular interest on MSN Money’s site is a Life Insurance Needs Estimator, which helps you calculate how much life insurance coverage is appropriate, based on your family’s financial needs.

CNN Money 101 series also has informative articles about life insurance. It explains the difference between term and whole life insurance (and offers advice on which is best), provides a guideline about how much coverage you need, and provides buying strategies to help you get the right policy at the right price.

Getting Quotes Online

Searching for a new policy doesn’t have to be time consuming. Several Websites can help you quickly compare life insurance rates from top rated companies from the comfort of your home. These include:

• Accuquote
• Find My Insurance
• Life Insure
• InsWeb
• SelectQuote

By answering some simple questions online, these websites will provide you with a general guideline about how much a life insurance policy will cost. That way, you can compare costs and choose the policy that fits your individual needs.

Researching Insurance Company Ratings

You may be able to get a great rate from an insurance company, but before signing on, it’s best to check the company’s reputation to make sure that it will be able to pay the death benefits if necessary. To determine whether the company from which you are purchasing your insurance is reputable, you can look at the following sites:

• The Street
• AM Best
• Standard & Poor’s

They all are free resources, but all except The Street require you to register on their site and provide and email before accessing any information.

Some final thoughts…

As your family grows and changes, your insurance needs will probably change too. So it is important to review your insurance during major life events, such as the birth of a child, marriage or divorce.

With life insurance, it is important to remember that the cost of insurance generally increases as you get older. To get the most reasonable rates, purchase it when you’re young and healthy.

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In 2010, there is no estate tax. However, the estate tax is scheduled to return next year.

Whether you will be required to pay federal estate tax will depend on the value of your gross estate, minus your debts and liabilities. Estate tax is due on the portion of a net estate that exceeds the federal estate tax exemption amount.

Calculating the Gross Estate

The value of all your assets will be used to calculate your gross estate. These include:

• real estate, including your home
• cars, boats, airplanes
• closely held business interests
• bank accounts, including checking, savings, money market and CDs
• investment accounts such as mutual funds
• stocks and bonds
• money owed to you at the time of your death, such as loans you’ve made, wages and bonuses or commissions
• personal property, such as furniture, clothing, jewelry, antiques, art and books.
• retirement accounts, such as IRAs, 401(k)s, and annuities
• death benefits from life insurance policies

Calculating Your Liabilities

To determine your net estate, you can subtract the following from your gross estate:

• debts and expenses, such as mortgages, lines of credit, personal loans and credit card debt
• expenses associated with the administration of your estate
• certain medical expenses
• funeral expenses
• charitable gifts
• transfers to a spouse who is a citizen of the United States

Your estate will be taxable if the value of your net estate is greater than the available federal tax exemption. Unless Congress passes new estate tax legislation, the exemption amount in 2011 will be $1 million.

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Time is running out. If Congress does not pass new estate tax legislation this year, estates valued at over $1 million will be subject to taxes of up to 55 percent starting on January 1, 2011, which means that many more Americans be affected by the estate tax.

When the year began, many estate planning attorneys were optimistic that Congress would act quickly to reinstate last year’s exemption amount and tax rate. But with more than half the year gone, confidence is waning. According to Julie Garber’s  Estate Tax Straw Poll – The Results Are In, more than two thirds of the attorneys, trust officers and accountants she polled believed that Congress would do nothing this year.

Many others share their views. Hani Sarji has collected the predictions of many professionals about what Congress will do about the estate tax in his blog post, Forecasting the Future of the Estate Tax, which he has been updating. The consensus is that Congress will not act.

I’m still hopeful, but I’m not holding my breath.

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In Texas, the level of court involvement in the probate process depends on whether there is a dependent or independent administration.

Independent adminstration

Texas allows independent administration of an estate when the testator provides his or her will that there should be no action in the probate court in the settlement of the estate other than the probating and recording the will and the return of an inventory, appraisement, and the list of claims of his estate.

Independent administration will also be permitted when all beneficiaries agree to an independent administration even though the deceased person dies intestate, or does not expressly authorize an independent administration in his or her will.

Independent administrations usually involve only one court hearing and the filing of an inventory. They account for more than 80 percent of Texas probates.

Dependent administration

Dependent administration, on the other hand, involves a lot more court supervision, and is consequently more time-consuming and expensive. With a dependent administration, a court overseas every aspect of an estate’s adminstration.

This means that an administrator must post bond, hire appraisers, submit an annual inventory, petition the court for permission to sell property or distribute assets, and file a final report with the court.

There may be good reasons for a dependent administration, such as when there is a high level of distrust between heirs.  But in terms of in terms of minimal court involvement, independent administration is most beneficial.

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Probate is not necessary for many items of personal property. For example:

1. There are many assets such as life insurance proceeds, IRAs, pension plans and retirement accounts that pass outside the will to beneficiaries named by the decedent.
2. Additionally, property held by the decedent and others as joint tenants with rights of survivorship, such as bank accounts and certificates of deposit, pass outside the will directly to the survivor.
3. Finally, property held in trust will pass under the terms of the trust rather than the terms of a the decedent’s will.

However, when ownership of the decedent’s property is evidenced by title, that property cannot be sold or transferred until the dededent’s name is removed from the title. Probate records become a link in the chain of title, demonstrating that the decedent’s property has passed to someone else.

Related posts:

1. When Should I Probate a Will?

One thing that motivates many parents to make a will is the desire to designate guardians who will raise their children if the unthinkable happens. And yet many parents delay getting their wills drafted because they have difficulty selecting a person who seems ideally suited for the role.

No one guardian can replace you or teach your children all the lessons you want them to learn. But perhaps other people can help fill a void that the guardian you select may not be able to.

A Council Dads (or Moms)

Bruce Feiler was 43 year old when he was diagnosed with an aggressive bone cancer. As a father of three year-old twin girls, he says he crumbled when he thought of the possibility that he would not be present for the milestones in his daughters’ lives.

And he worried about how his death would affect his daughters. “Would they wonder who I was? Would they wonder what I thought? Would they lack for my approval, my discipline, my voice?” he asked.

To fill the void that the possibility of his death would bring, he enlisted the help of close friends to serve on a “Council of Dads.”

These men would not serve as the children’s guardian, a role reserved for Bruce’s wife. Rather, each embodied a different characteristic that Bruce wanted them to impart on his daughters if the cancer took his life.

1. Ben Edwards, who’s known Bruce since kindergarten, would teach the girls about where their dad came from, and would help them enjoy their childhood.
2. Jeff Shumlin, his camp counselor, would embody Bruce’s adventurous spirit and teach them to exlore their world.
3. Max Steir, Bruce’s college roommate, would help the girls be true to themselves, and to live to its fullest.
4. David Black, his business partner, would teach the girls that their dreams could be achieved with hard work and determination.
5. Ben Sherwood, Bruce’s closest confidant, would challenge the girls to always ask questions.
6. Joshua Ramo, Bruce’s poet friend would remind the girls to take time to reflect on their lives.

Who Could Serve on Your Council?

Do you have close friends or family members who could fill a void that the guardian you select may not be able to? Who are they? Perhaps you should consider forming your own council of dads or moms to help your selected guardian share the lessons you want your children to learn.

Thankfully, Bruce is now cancer-free and able to watch his girls grow. He has written a book called “The Council of Dads.” You can also find out more about the Council of Dads on his website by following the link.

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June has already come to an end, and Congress has not yet enacted new estate tax legislation.

Although the estate tax is currently dead, it is scheduled to be reinstated on January 1, 2011. Last year, only estates valued at over $3.5 million were subject to an estate tax of up to 45 percent.

But unless new estate tax legislation is passed, estates worth over just $1 million will be subject to an estate tax of up to 55 percent.

A million dollars sounds like a lot

While $1 million sounds like a lot, homes and insurance policies are included in the calculation of the size of your estate, making it easy to pass the $1 million threshold.

So, if Congress fails to pass any new tax legislation, many more families will need to consider estate plans that minimize their estate tax consequence.

Protecting your assets from estate taxes

Attorney Deborah Jacobs recently wrote an article published by Forbes that summarizes some of the things families can do to protect their assets from estate tax. Below is a summary of some of the tips she mentioned:

1. Review your life insurance policy ownership. If you own an insurance policy at the time of your death, the proceeds are subject to estate taxes unless they are left to a citizen spouse or charity. By making a beneficiary the owner of a policy, estate taxes can be avoided. If the beneficiary is a minor, an irrevocable life insurance trust can be established to own the policy.
2. Put some assets in your own name. You can create a family trust to hold the estate-tax exempt assets of a deceased spouse. Depending on your net worth and the estate tax laws in effect at the time of your death, certain assets can be disclaimed by your surviving spouse and placed into the trust. Income or principal from the trust can be used for the benefit of your surviving spouse but will be excluded from his or her estate. However, in order for this to work, each spouse must own some property individually. Property owned jointly automatically transfers to the surviving spouse upon the death of the first spouse.
3. Maximize annual gifts. You can reduce the size of your estate by giving up to $13,000 a year to as many people as you want. Spouses can give up to $26,000 jointly. You can also take advantage of a $1 million lifetime gift tax exemption.
4. Fund college savings plans. You can contribute your annual exclusion to fund a Section 529 state college savings plan. The earnings in a Section 529 state college savings plan are exempt from state or federal income tax and the money in the account is not counted toward the surviving spouse’s estate.
5. Pay tuition and medical expenses.  You can pay tuition, dental, and medical expenses for anyone you want without using up your annual gift exclusion, as long as you pay the providers directly.
6. Convert to a Roth IRA. The value of the Roth IRA is included in your estate, but the taxes you prepay when you convert to a Roth reduce the size of the account. Upon your death, heirs can get the money income-tax free.

You can read Prepare for the Return of the Estate Tax by following the link.

Related posts:

1. Don’t Wait Until Just Before You Get On A Plane to Prepare Your Estate Plan

Texas is a community state. There is a presumption that all property acquired during the marriage belongs to the spouses in equal shares.

If you have a valid will, you can choose to give your separate property and your share of the community property to someone other than your spouse. However, your surviving spouse will be entitled to retain his or her share of the community estate.

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