The Estate Administration Process – Step by Step

Let’s assume that probate is the best choice for your estate, or at least unavoidable. Now that you’ve designated your executor, here’s a general outline of what she’ll face after you die.

Step 1: Opening the Estate. If you left a will, your executor’s first job is to submit the original copy to the probate court having jurisdiction—the court in the county where you lived. In some states, it may be necessary to prove, in a brief hearing, that the will is valid. This is usually routine, but if there is a will contest—someone disputes that your will is valid, is your last will, etc.—or if there are complications, a lawyer’s help will definitely be required. In many states, the probate court may require you to have a lawyer for courtroom appearances.

To “open the estate,” the executor completes certain forms that notify the court and interested parties of your death. At this stage, depending on state law, the executor may have to choose among several types of probate—supervised, unsupervised, and small-estate. This decision is important, and it may be a good idea to get your lawyer’s analyses of the pros and cons of each.

Step 2: Collecting the Estate’s Assets. The next step is to inventory the assets of the estate. If you've already prepared the inventory described in chapter 2, your executor will be quite grateful – and if she's being paid, your estate might save a lot of her time and your money. Otherwise, a lawyer might be helpful in differentiating the property that passes through probate from the property that is out of the probate process. See chapters 3-5 on property that's transferred without a will.

For assets that do pass through probate (assuming they are held in sole ownership), the value of stocks and bonds depends on their value on the date of death. The same is true of bank balances. The value of other forms of property, such as real estate, antiques, collections, and art objects may have to be set by professional appraisers.

Step 3: Managing the Estate’s Assets. If you owned a business, or income-producing real estate, or an active portfolio of stocks and bonds, your executor might well have to take on responsibility for managing this property. That’s why it’s a good idea to specify in a will that the executor has authority to retain certain kinds of property in the estate, continue running the business, buy or sell real estate, borrow money, and take advantage of tax savings. All these decisions may have significant legal dimensions, and the executor may benefit from legal help.

Step 4: Handling Taxes. Your executor must notify the IRS of his/her appointment by sending in a form and applying for a separate taxpayer ID number for the estate. The executor must file a form to pay the federal estate tax for estates whose value exceeds the threshold. See chapter 20. There may also be state estate taxes to pay, sometimes even on smaller estates. On the federal estate tax return, there is a credit for state death taxes. That credit, which is scheduled to expire in 2005, is paid directly to the state, a so-called pick-up tax.

The executor must also file some income tax returns. A personal return covers income the deceased person earned in the tax period before dying. This final income tax return (Form 1040) for you is due by April 15 of the tax year after the year you died, unless your executor obtains an extension. A return for the estate covers income earned by the estate while the estate is being administered, such as through dividends, income from the sale of property, etc. Taxes may have to be paid before money and other assets can be distributed to the beneficiaries. The executor has many decisions to make regarding how and when to pay taxes, a number of which could significantly affect the amount of taxes that are due.

Step 5: Closing the Estate. This process could well vary state by state, but generally it involves filing various forms with the court. These require the executor to show that all interested parties—including creditors—received timely notice of the death, that the time period in which claims can be filed against the estate (specified by state law) has passed, and that all valid claims (including taxes) were paid. A final accounting—totaling up all the estate’s assets, minus expenses—will also be required. This will also indicate the amounts to be distributed to beneficiaries.

Step 6: Distributing the Assets. Again state laws may vary on details, but the general pattern is that all the assets are not paid out to beneficiaries until the court has approved the executor’s filings regarding assets, claims, taxes, etc. In many states, a portion of the assets can be paid out by way of partial distributions before the final stages. This helps minimize financial hardship for your family.

Possible Pitfalls

Administering estates can be routine, but issues that can arise—besides those specified in this chapter—include

• bonding requirements for the executor (has it been waived by the will?)
• methods of serving notice of the death and proving that all interested persons received such notice
• the spouse’s right of election. State law generally gives surviving spouses the right to a certain percentage of the estate, despite what the will says (see chapter 14). So a disinherited spouse may have the right to claim a percentage of assets of the estate. Also, the family homestead is usually shielded from creditors, and that could be an issue in certain estates.
• out-of state vacation homes or other real property, which can necessitate ancillary probate
• disputes over what provisions of the will mean (is it clear which person is to get which property?)
• discovery of assets (have they all been located? Has the executor shown proper diligence?)
• letters of administration for the executor
• disputes among beneficiaries and
• disputes regarding creditors’ claims.

When these or other difficulties surface, a lawyer’s help can be invaluable.