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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