Most of us, at one time or another, must take on the responsibility of wrapping up the affairs of a loved one who has died. The essence of the job is to carry out the deceased person’s wishes to collect the person’s assets, pay debts and taxes, and distribute what’s left to the people or institutions the person wanted to inherit it. That’s how an estate is “settled.” Because an executor is in charge of someone else’s money, the law imposes a high ethical standard. An executor (also called personal representative) must be completely honest and always act in the best interests of the estate. You must also deal with the people who inherit under the terms of a will or, if there isn’t a will, under state law. And if necessary, you must shepherd the estate through probate court proceedings, probably with the help of an attorney and other experts. If you need expert advice, you can hire professionals, and pay them from estate assets. Estate settlement requires a broad range of skills and carries a long list of responsibilities, from preparing and filing taxes to resolving conflicts among beneficiaries. It also carries significant legal liabilities and requires a commitment of time and energy, it can take as much as two years to settle even the most straightforward estates.
Find The Will, If Any
Sometimes finding the will is easy and sometimes it’s not. Look in desks and filing cabinets (home and office), fireproof boxes, and anywhere else the deceased person was likely to stash important documents. If there’s a safe deposit box, even if you don’t have a key you will be allowed to open it for the sole purpose of looking for the will. If there is no will, property will pass through intestate succession.
File The Will With The Local Probate Court
Make a copy for yourself, and then file the original with the probate court. Even if you don’t think you’re going to need to conduct a formal probate court proceeding, you’re required by law to deposit the will with the court.
Notify Agencies And Business Of The Death.
For example, you should notify:
• the post office
• utility companies
• credit card companies
• banks, and
• other businesses with whom the deceased person had an account.
Also, notify any agencies from which the person received benefits like the Social Security Administration. The more quickly you do this, the more quickly direct deposits (or checks) will be stopped, and you won’t have to worry about returning payments to which the estate is not entitled.
Inventory Assets And Get Appraisals
You’ll need a thorough inventory if you conduct a probate court proceeding. In any case, it will help you keep track of valuables, determine how you can transfer different items (because you’ll note how title to assets is held), divide property among beneficiaries who are supposed to get equal shares (typical with siblings), and determine whether or not the estate will owe state or federal estate tax.
Decide Whether Probate Is Necessary
To make this determination, you’ll have to tally up the value of the property subject to probate, see how title is held, and learn your state’s rules on what estates qualify for simplified procedures. If you need to conduct a probate court proceeding, you can probably get help from the court’s website or other materials. You may also want to hire an attorney to help with probate paperwork or to help solve any disputes among beneficiaries or creditors.
Coordinate With The Successor Trustee
If the deceased person left both a will and a living trust, as many people do, you’ll need to work closely with your counterpart who’s in charge of trust assets, the successor trustee. A living trust is like a will in that it lets someone leave property to named beneficiaries. The big difference is that trust property doesn’t have to go through probate before it can be turned over to the people who inherit it.
Communicate With Beneficiaries
Your court, or a lawyer, can help you notify beneficiaries. If the estate goes through probate, you’ll have to send very particular kinds of notices to a certain group of people. Whether or not there’s a court proceeding, it’s always a good idea to be in regular communication with beneficiaries. Beneficiaries can grow unhappy or suspicious of wrongdoing when they aren’t kept in the loop about what’s going on with the estate. Even if nothing is going to happen for a while, let them know you’re moving ahead as fast as you can to get them their inheritance. Don’t surprise them with big moves like selling real estate if they think you’re incompetent or dishonest, they can go to court and try to have you removed.
Take Good Care Of Estate Assets
This is a key part of an executor’s job. You must keep real estate well maintained, small valuables secure, and everything of value insured. Keep investments safe, the goal is to avoid losing money, not to reap big returns.
Collect Money Owed To The Estate
This will take some time to fill out paperwork and make phone calls, but it should be pretty straightforward. You can deposit the money you collect in the estate bank account.
Pay Bills Owed By The Estate
You’re responsible for paying legitimate bills, as there is enough money in the estate to pay them. You don’t have to pay the deceased person’s debts out of your own pocket. If you think there won’t be enough money to go around, stop paying bills and get some guidance from the court or an attorney about which debts should take priority.
Deal With Taxes
You’ll need to file income tax returns for the deceased person and possibly for the estate. The deceased person’s tax preparer can be a big help here. If the estate was very large over $5 million you may also need to file estate tax returns. Smaller estates may owe a separate state estate tax; it all depends on where the deceased person lived and owned property.
Distribute The Assets
When the debts and taxes are paid, when the probate (if any) is closed, your last job is to distribute property to the people who inherit it under the will or state law. (Then congratulate yourself for a job well done.) Many executors decide, sometime during the process of winding up an estate, that they could use some legal advice from a lawyer who’s familiar with local probate procedure. But if you’re handling an estate that’s straightforward and not too large, you may find that you can get by just fine without professional help. Most or all of the deceased person’s property can be transferred without probate. The best-case scenario is that you don’t need to go to probate court, because assets can be transferred without it. This depends on the planning the deceased person did before death-you can’t affect it now. But you won’t need probate if all estate assets are held in joint ownership, payable-on-death ownership, or a living trust, or if they pass through the terms of a contract (like retirement accounts or life insurance proceeds). The estate qualifies for simple “small estate” procedures. No probate is best, but simple or “summary” probate is better than regular probate. Whether or not the estate qualifies for the summary procedure depends on state law. A few states let estates worth a couple of hundred thousand dollars not counting non-probate assets use the simpler process. If probate is necessary, the state has a relatively simple process. Probate is easier in states that have adopted the Uniform Probate Code (a set of laws designed to streamline probate) or have simplified their own procedures. The estate doesn’t contain a business or other complicated asset. Managing, appraising, and selling a business are all tasks that require some expertise and experience. You’ll probably want expert advice.
No One Is Fighting
If disgruntled family members want to contest the will, or are threatening a lawsuit over the will, get a lawyer’s help right away. You may be able to head off a court fight which will consume more money and time than you can probably imagine or at least figure out how to win it. The estate has enough assets to pay its debts. In this case, you don’t have to worry about paying legitimate debts—there will still be money left over for the inheritors. But if it looks like there won’t be enough money in the estate to pay debts and taxes, get advice before you pay any creditors. State law will set out the order in which creditors get priority, and it’s not always easy to figure out how to parcel out the money. More than 99% of estates don’t owe federal estate tax, so this isn’t likely to be an issue. But around 20 states now impose their own estate taxes, separate from the federal tax and many of these states tax estates that are valued at $1 million or larger. If you will be responsible for filing an estate tax return with the state where the deceased person lived or owned real estate, you should get legal and tax advice. An estate tax return is not a do-it-yourself job.
How Can I Avoid the Probate Process?
There are a few different ways to distribute a decedent’s estate that does not involve the probate process. Some of these include:
• Joint Tenancy: This is a type of property ownership in which two or more people own part of a property. When a joint tenant dies, the remaining joint tenants inherit the decedent’s share of the property, as opposed to the decedent’s heirs inheriting the share. Joint tenancy is typically associated with the legal co-ownership of a home, car, or bank account. The property’s co-owner automatically receives full ownership of the asset without having to first go through the probate process in order to pass the title. There are specific conditions that must be met for joint tenancy to exist;
• Life Insurance Policies: Life insurance policies in which a person pays a premium each year and names a beneficiary may circumvent the probate process. The named beneficiary automatically receives the life insurance policy benefits and payout when the policyholder dies; and
• Trusts: Trusts involve transferring the legal title of an asset to a trustee. When the estate owner dies, the named trustee is bound to distribute the decedent’s property according to the terms of the trust.
Pros and Cons of Avoiding the Probate Process
The main advantage to avoiding probate is cost. Probate costs generally include attorney’s fees, and can be costly, especially if the decedent owns property in a different state. This is due to the fact that probate proceedings would be required in both states, although a trust would likely correct this problem. Trusts can also be tailored to meet specific requests, which is not necessarily true of the probate process. Because the execution of a trust is much less formal than that of a will, the terms of a trust can easily be changed to suit the needs of the estate. Another advantage to avoiding the probate process is that the process can be complicated, as well as time consuming. Probate can take up to several years to completely resolve all matters related to the decedent’s estate. Avoiding the process can help settle things more quickly. Another advantage to avoiding the probate process is privacy. Wills and probate proceedings are matters of public record. If you would prefer to keep your affairs private, and that people not involved do not know how your estate was distributed, you will need to distribute your estate through a trust or some other estate planning mechanism.
There are some disadvantages to avoiding probate that you should consider. In general, it costs slightly more to create and fund a trust than it does to create a will. However, as previously mentioned, it could save money in the long run by avoiding paying probate costs out of the estate. Additionally, in order to completely avoid the probate process, you must carefully place all new assets you obtain into the trust. Otherwise, probate may still be necessary. Finally, taxes can be a bit higher for the first years after your death if the estate is distributed through a trust, as opposed to a will. As with any estate planning, you should consult with a skilled and knowledgeable probate attorney. An experienced probate attorney can ensure you understand your state’s laws regarding probate and estate distribution, as well as advise you of your best estate planning options. Additionally, an estate attorney can also advise you regarding the best possible estate plan suited for your needs and the size of your estate. Finally, an attorney can represent you in court, should any dispute arise.
Individuals who are considering drafting a trust or a will may wish to consult with an estate planning lawyer. He or she can explain the advantages of using a trust as well as a will. He or she can make recommendations based on the specific considerations of the client. He or she may even recommend using both documents, such as by using a pour-over will that places any property owned at the time of the testator’s death into the trust.