Matters to be Attended to in Estate Settlement
The funeral arrangements of a decedent are the first matter which must be attended to. This is done before anyone has been appointed by the probate court and often before any will is found. For this reason burial instructions in wills are not always effective. Someone will have to pay or guaranty the funeral home and cemetery bills. They will be entitled to reimbursement from the decedent's property along with those who administer the estate before anyone else gets anything.
Whoever handles the arrangements with the funeral home should get a good number of death certificates from the home. At least 10 for ordinary estates and at least 25 for larger or more complicated estates.
The next thing to do is look for a will. If one is found whoever has it is obligated to file it with the probate court. This is not the same thing as beginning probate proceedings. Filing the will is all that is required.
At this stage it will be necessary to determine whether or not to open a probate estate. This will depend on a variety of factors. Often the size of the estate is determinative.
The next thing to do is determine who the heirs are. This sometimes involves a search for missing heirs or trying to determine if a known heir is alive or dead. It is necessary to trace the family tree as well as just determining the heirs by name and relationship. It will also be necessary to get each one's exact name, address and social security number.
The same information (name, address and social security number) will be needed for all other persons involved such as legatees named in a will and any executor, administrator or guardian. It is important to get zip codes because addresses are useless without them. It is a good idea to get phone numbers also.
The person doing all this is usually the one named in the will as executor or the person who will petition to become administrator. However, sometimes there are questions about who should act or more than one person claims the right to act. The designation in the will usually will be respected by the court, if it accepts the will. Otherwise there is a statute which states which persons have a right to be appointed and in what order.
The executor or administrator has the right to choose the attorney for the estate. This need not be the attorney who drafted the will, although that attorney's knowledge of decedent's affairs may be helpful.
At this stage, if probate will be necessary the potential executor or administrator petitions the court to accept the will, if any, to declare who the heirs are and for the official appointment of the executor or administrator. The document appointing the executor or administrator is referred to as letters of office. This is a court order appointing him or her. Third parties dealing with him or her will want to see these so the lawyer will get a number of certified copies. When the probate process begins all interested parties must be notified in case they may want to object to any of the proceedings.
At this time guardians are appointed for minors or disabled adults who are interested in the estate, if necessary. It will be necessary if they are receiving significant assets.
The next step is to determine who the creditors are and give them notice of the death and their right to file claims against the estate. Since they have only a limited time to file they must also be notified of the time limits. Known or discoverable creditors must be given actual notice. Others are notified by publication. For this purpose a search for debts must be made. When one is found the name, address, account number and amount owed must be ascertained. All claims are barred unless filed within 6 months of the first publication for claims or within 3 months of the date of actual notice whichever is later. Claims may be filed with the executor or administrator, the attorney for the estate or the court. In any event, all claims are barred unless filed within 3 years of the date of death.
At this stage the executor or administrator must identify all the decedent's assets and prepare an inventory which must be sent to all interested persons, who at this stage are all heirs, legatees and unpaid creditors. Don't overlook:
If there is any real estate in other states you may have to probate the estate there.
The assets will be put in the name of the executor or administrator acting for the estate. It will be necessary to get a tax identification number (FEIN) for the estate and open a bank account for the estate. A form 56 must also be filed with IRS to notify them of the relationship. Unless the will provides otherwise or everyone involved agrees, it is the duty of the executor or administrator to turn all the assets into cash as well as to get them in his or her name.
All estate funds must be invested to produce income, except for a prudent reserve for expenses. The object is safety of capital for the short term and not long term investment or wealth building.
If there is any trouble collecting assets or information about them or if there is any question about who owns assets the matter can be determined by the probate court in citation proceedings. In effect the person who claims the assets or who has information about them is sued for the assets or information.
The executor or administrator is accountable for all acts and it is important that detailed records must be kept. All income must go into the estate account and all expenses must be paid from it. Their personal funds should never be commingled with the estate funds. For all transactions a record of the amount, date, to or from whom and for what must be kept. Receipts and bills should be kept wherever possible. If there is any question about the propriety of an act or expense or whether or not someone would object the executor or administrator can give all interested persons notice and ask the court for permission to act or spend as desired.
Changes of address must be made for the decedent's utilities, subscriptions, mail and credit cards so mail will go to the executor or administrator. Any unwanted charge accounts or credit cards should be terminated.
The estate's property must be kept properly insured against loss and, if necessary, liability for personal injury.
Social Security should be notified of the death and the final check return if unearned.
Sometimes appraisals must be obtained for personal property or real estate. This is most often true if there is a taxable estate and there is no listed trading price for the property. The value for tax purposes is determined by appraisal. The values of different properties also sometimes make a difference as to who gets what and appraisals are needed in that event. Appraisals are also needed if property is going to be sold and there is no other indication of its worth. Otherwise the executor or administrator could be charged with selling for too little.
Business interests must be sold unless the will allows them to be continued or you can get everyone to agree to continuation. This is impossible when a trust is involved.
All decedent's estate is a taxable entity and must usually file income tax returns and pay tax on any income not distributed to beneficiaries. Distributions of income to the heirs or legatees are deductible by the estate and they pay tax on the income.
A final income tax return must also be filed for the decedent and any tax due paid. If the decedent did not file in prior years, returns for those years must also be filed. The estate must settle all of the decedent's outstanding tax controversies and pay any taxes, interest and penalties which may be due.
Large estates may also be subject to state and federal estate taxes. This is usually the case where the net estate over and above any amounts qualifying for the marital deduction exceeds $1,500,000. The tax rate begins at 45%. Since the decedent's gifts during his life are added back to the estate to determine its size (there is a credit for gift taxes paid) it is necessary to find out what these gifts were.
When all assets have been collected, all bills paid and all tax and other matters attended to it is time to render an account of all activities in the estate to all interested persons. They have a right to notice and to object to any part of the account. This is why court approval is obtained for any doubtful matters as administration proceeds. In supervised administrations that take over one year a current account is usually filed yearly. When the final account is approved by the heirs or legatees, and the court if a supervised administration, the executor or administrator makes distribution to the heirs or legatees and is discharged by the court. A final form 56 is then filed with IRS telling it of the end of the relationship.
Before final distribution it is sometimes necessary to consider disclaimers. These are documents in which people can disclaim their share of an estate. They can be useful for tax purposes. They also give the beneficiaries an opportunity to override the decedent's or the law's scheme of disposition.
Throughout all this process it should be remembered that an executor or administrator is a fiduciary and subject to strict standards of conduct. If any act is questioned the fiduciary bears the burden of proof.
If a fiduciary is found to have acted wrongfully and that causes loss the fiduciary must make it up out of his or her own pocket. Therefore the fiduciary should check with counsel each step of the way.
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