California estate executors with stock portfolios are facing a year of financial market volatility. The Fed is said to have faced a "wall of worry" in January, "forecast uncertainty" in February, and 2016 S&P 500 and Dow highs in March. With these gyrations, it may be a good time to give a second look at how a California estate should be holding money or investments.
What we are seeing now raises the awareness of how a California executor of a Will should manage probate assets like cash, stocks and bonds. And given this need for management, how should the executor effectively communicate with estate beneficiaries who may feel the market unease?
Estate administration may have its tense, fraught moments within a family marked by disagreement as to estate assets and their distribution. Here are three common investment mistakes that California personal representatives (trustees, executors or administrators) can make with cash and estate investments.
- Failure by the personal representative to hire someone to manage the money. In California probates, experienced estate and probate litigation lawyers will confirm that most people who are named executors don't have the time and experience to manage money. Hiring a trusted accredited investment fiduciary, chartered financial consultant or a money manager like a bank or trust company is an exercise in prudence. These management services are paid for with estate money. The personal representative still has the duty to select and monitor the estate agent but the representative's personal liability may be limited or eliminated for estate losses if this is done right. The other side of the investment coin is that the failure to make a return on investments may also expose the personal representative to personal liability. The lesson in all of this: Hire a qualified and experienced money manager. Such management helps to assure the personal representative that he or she is protected and prepared in doing the tasks necessary for an efficient and effective estate administration.
- The failure to communicate well with heirs or beneficiaries, or the failure to seek instructions from the California probate court when such instructions would be helpful in fulfilling a personal representative's duties. Estate administration practices that are transparent, accountable and open will often allay beneficiary anxiety. It is common that the executor of a California estate will simply continue the same investments that were owned by the deceased person. This can be quite dangerous. A California trustee who "invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule" [Probate Code Section 16046(a)]. This means that the executor or trustee is supposed to invest prudently. There is a fairly lengthy statute as to what is prudent investing. The bottom line here is that personal representatives should keep beneficiaries informed and seek out a professional money manager. If the personal representative has uncertainties, then his or her attorney can petition the probate court for instructions.
- The failure to consider the liquidation of assets. This may be a failure of judgment or consideration. Cash usually makes sense in order to preserve an inheritance. That said the "expected tax consequences of investment decisions" are part of the evaluation that a prudent investor must make. Again, the hiring of a professional fully familiar with the Uniform Prudent Investor Act might be one of the personal representative's most important decisions in conducting the administration of an estate.
California estates often have a mix of assets. An estate might have a house in San Francisco, ranch in Sonoma, stock in a Silicon Valley company, membership shares in a Sacramento LLC and bonds in a Folsom safe deposit box. The administration of these estates without assistance of experienced and skilled counsel can be quite difficult. If you are facing issues as a personal representative, don't hesitate to call Hackard Law today at 916 313-3030. Our top priority is providing ethical, excellent and loyal service to our clients.