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Administering an Estate

GUIDELINES FOR EXECUTORS AND ADMINISTRATORS OF DECEDENTS’ ESTATES

The primary job of the executor (where there is a will) or the administrator (where there is no will) of an estate is to (a) ascertain and take control of the assets of the estate (meaning property that belonged to the deceased), (b) pay or otherwise make provision for any debts and taxes owed by the deceased at his death and by the estate, and (c) distribute the remaining property to the beneficiaries designated by the deceased in his will, or if there was no will, as provided by law. (For convenience, from this point on references to executor will include administrator, unless otherwise indicated.) 

            When handling property of the deceased person, the executor must be careful to keep it separated from his own property.  Estate checks, money, stocks, bonds, real property and the like must be held in separate accounts or title and not commingled with the executor’s property.  If there are uncashed checks, they should not be deposited until an estate bank account is opened.  It is good practice to change the registration on stock or bond accounts to the name of the executor as soon as possible after the executor has been appointed by the court.  If the estate obtains a safe deposit box, the name on the lease for the box should be that of the executor in his representative capacity (e.g. John Doe as executor of the estate of Jane Doe).  The same is true of the estate bank account and any other accounts opened for the purpose of holding estate assets before distribution. 

            One of the first actions that should be taken by the executor is to secure the deceased’s home (if there is no one else occupying it), make sure insurance is maintained until the home is disposed of, and obtain an inventory of the contents.  Any safe deposit box maintained by the deceased should be opened and the contents inventoried as soon as possible. 

At about the same time, the will should be filed in court and application made for court appointment of the executor.  Where there is no will, the administrator applies to the court for appointment. Once appointed, the executor has all the power and authority needed to administer the estate.  The document issued by the court authorizing the executor to act in the case of a will probate is called letters testamentary; in the case where there is no will the document is called letters of administration.  (Again for convenience, the term “letters” will henceforth be used to designate both documents unless otherwise indicated.) 

Administration of the estate is the process described in the first paragraph.  It can last anywhere from a few months to a few years.  Reasons for lengthy estate administration include (a) size of the estate, (b) number of relatives and persons or organizations named in the will (or persons not named in the will who might try to challenge the will), (c) lengthy tax negotiations with or delay by the IRS, (d) untangling the affairs of a deceased business person, and so on. 

Probating the will is usually a relatively short process of filing the will and asking the court to appoint the person designated in the will as executor, while estate administration can, as indicated above, be a lengthy process.  The distinction between probate and estate administration is often misunderstood by laypersons.   Probate is just one of the first steps in estate administration; it is the court procedure of proving the authenticity of the will. Once the will has been admitted to probate by the court, the remaining steps mentioned above are undertaken by the executor. 

One of the early decisions the executor must make is whether to retain assets subject to fluctuation in value (primarily shares of stock) or to sell such assets as soon as possible. In an emergency requiring immediate action, the court can issue temporary letters allowing the executor to act before the will is admitted to probate; the temporary letters cease when permanent letters are issued.  Failure of the executor to dispose of volatile assets can result in financial loss to the estate that the court might order the executor to pay. 

The executor must keep careful records all estate assets and transactions.  The executor and the lawyer for the estate must decide who will keep the records and estate property such as stock certificates and bonds.  If the executor maintains and keeps them, they should be kept in a secure place known to the estate’s lawyer.  The executor must decide how active he wants to be in the estate administration process.  Many executors decide to leave the details to the lawyer, which may be prudent in many cases, especially where the executor is not familiar with the process of administering an estate.  In cases where the executor wants to play an active role, frequent consultation with the lawyer and providing him with status reports is important. 

A corollary to that is whether the executor should retain a lawyer to help administer the estate.  Many if not most executors retain a lawyer to help out because lawyers are more likely than the executor to be familiar with the estate administration process.  If a lawyer is retained, the executor should ask him to prepare a letter explaining the services the lawyer will provide and his billing procedures. 

Listed below are some of the specific things the executor must do:

a.               Obtain the will and make its contents known to the immediate family;

b.              Arrange for burial or other disposition of the body if there are no immediate family members to take care of that task;

c.              Secure the deceased’s premises and obtain or continue adequate fire and liability insurance in the name of the executor;

d.              Analyze and list the estate’s property;

e.              Apply for public or private benefits such as life insurance, social security for survivors and pension or other retirement funds unless the beneficiaries handle those applications themselves;

f.                If there will be a delay in obtaining letters, notify creditors of the death and ask the creditors to wait for payment;

g.               File the deceased’s final federal and state income tax returns and pay any income taxes which may be due;

h.               Obtain copies of all gift tax returns filed by the deceased;

i.                Consider retaining an accountant to handle the income tax work; usually the estate’s lawyer handles estate tax work (the deceased’s own accountant is a good candidate for this job);

j.                Diary the due dates of income and estate tax returns;

k.              Prepare a statement of the estate’s assets and liabilities in order to ascertain whether there is any shortage of estate assets to pay taxes, administrative expenses, debts, and any cash legacies provided in the will (by law, taxes have the highest priority; next in order of priority are administrative expenses; creditors come last);

l.               If the estate’s liabilities exceed its assets, communicate with the estate’s creditors and beneficiaries to explain how the shortfall will be handled;

m.             If there are enough assets to pay all taxes, administrative expenses and creditors in full but not enough to fund all cash legacies provided in the will, notify the legatees of that fact and estimate how much each legacy will be reduced;

n.               Assuming the estate’s assets exceed its liabilities, the cash legacies and personal property (such as jewelry, furniture and clothing) should be distributed to the beneficiaries named in the will within seven months after death in order to avoid having to pay interest on unpaid or undistributed legacies;

o.               When distributing estate property to its beneficiaries, obtain a document from each beneficiary acknowledging receipt of the money or property distributed;

p.               Consider making partial distributions of the estate’s property to the residuary beneficiaries (they are the ones who get whatever is left after payment of taxes, debts, administrative expenses and monetary legacies) before the estate is closed if there are enough estate assets to do so;

q.              After any estate tax returns have been approved by the taxing authorities and all taxes, debts, administrative expenses and legacies have been paid, close the estate;

r.               Before final distribution of the estate, obtain either a signed receipt and release from each of the remainder beneficiaries (referred to customarily as an informal closing) or, in the alternative, get a court decree discharging the executor from all matters disclosed on the executor’s account;

s.              In connection with the previous paragraph, prepare an account of all the estate’s receipts and disbursements; in the case of an informal closing of the estate, an account in abbreviated form may be sufficient; if a court decree is sought, the longer and more complex court form of the account must be prepared;

t.               File the estate’s final fiduciary income tax returns;

u.              Pay the final bills of the estate, distribute the remaining money to those entitled to it and close the estate bank account.

© 2002 by Richard A. Whitney

 

   

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© 2003 Richard A Whitney