Dawdling executor could erode estate's value

Seven-year rule applies to negative marks on credit reports, not debts - DOLLARS & SENSE

January 14, 2001|By Liz Pulliam Weston | Liz Pulliam Weston,LOS ANGELES TIMES

My wife's mother passed away three years ago, leaving an estate of about $1.5 million and naming her son as executor. To date my brother-in-law has done little to settle this estate. In the interest of family harmony, my wife does not want to take legal action to have him removed as executor. I have pointed out that since he hasn't filed an estate tax return, taxes, penalties and interest are accruing and eroding the estate's value. Do you have any suggestions?

Your brother-in-law's inaction, and your wife's unwillingness to confront him, have cost the estate plenty. Failing to file a required return merits a penalty equal to 25 percent of the $300,000 or so in estate taxes that could be due. If the Internal Revenue Service decides the failure to file was intentional - that your brother was trying to defraud the government - the penalty could increase to 75 percent. Sprinkle on some interest at 9 percent or so per annum, and one-third or more of your mother-in-law's estate already might be history.

The family needs to hire a certified public accountant or other tax preparer skilled in handling estates. It might need to hire an attorney who specializes in tax problems as well. The fees paid to these professionals will be deducted from the estate.

If your wife's brother doesn't cooperate, you might need to go to court to remove him - but that probably won't be necessary. Just mention to the procrastinator that he could be responsible personally for those taxes, penalties and interest if, for whatever reason, the IRS isn't able to get them from the estate.

I hear all the time, including in your column, that debts must be erased after seven years. At what point does the seven years start? From the initial granting of credit? From the date of the first payment that was not received by the creditor? No one ever seems to recognize that the average person has no clue what is meant by that "seven years." Please answer this e-mail. I don't always get a chance to read your column, and if I don't catch your answer I'll never find out!

Biblical scholars can correct me, but I believe wholesale debt forgiveness every seven years or so has been out of fashion for a few thousand years. If that weren't true, the 30-year mortgage would be a bit passe.

The seven years you refer to is the length of time a negative mark can stay on your credit report. A negative mark can range from a late payment to a complete refusal to pay a debt. (Bankruptcies can stay on a credit report for 10 years.) The clock typically starts ticking when the item is reported to the credit bureaus that maintain your credit report.

A debt's a debt, however, until it's paid or forgiven.

I am well aware of your financial acumen, but seriously question your spelling ability! When you wrote about account "aggregation," I suspect you really meant account "aggravation." I am skeptical of the ability of financial institutions to handle a consumer's entire financial picture. Their track record in handling only the banking end of their customers' affairs leaves a lot to be desired. Granted, I do not have the widespread investments that many do, but I like the control I have - and the guarantee of privacy that I am not sure I would have in others' hands.

You have a good point.

Many banks and Web sites are touting account aggregation, which allows consumers to keep track of all their financial accounts in one place electronically. An electronic robot takes the user identification and password you supply to visit your bank, brokerage and credit card accounts; downloads your recent transactions; and uploads them to the Web site.

Although the benefit to the consumer is supposed to be convenience and simplicity, no one is quite sure what the companies that provide account aggregation can and cannot do with the data they collect. There's also the question of how secure this data can be when it's sitting on a Web site.

Until these issues are settled, most consumers would be wise to proceed with caution. Those who absolutely can't resist the idea should read the sites' privacy policies carefully.

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