Nice going! You, the family, and Loved One’s other estate fiduciaries are well into discovery and assembly. Concurrently, ready or not, the estate’s personal representative or administrator, and Loved One’s trustees — or the incompetent’s guardian, conservator, agents and attorneys-in-fact — must begin the estate’s administration.
“Whoa, Gary, what are you dragging me into?” Navigating the administration of a deceased or declared-incompetent person’s estate, that’s what.
No more estate planning can be done, no matter how flawed the plan is. You have to go with what’s there. The state and federal governments, and of course the heirs, demand action. The unforgiving mandatory pattern of tasks must be accomplished, in a specific sequence, and on a no-excuses timetable. Sometimes multiple state or foreign governments are involved, too.
Again, mercifully, not all the possible tasks are necessary in every case.
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Here’s the anatomy — what it all looks like, but not necessarily in prescribed or in logical sequence, which, of course, depends on the dynamics of each individual case and by the jurisdiction’s laws and rules of procedure:
• Filing the prescribed paperwork with the court to request Letters of Administration, or their equivalent: This is the will-nominated, or petitioned, appointment and responsibility decreed by the probate (or similar) court, appointing someone, usually designated “personal representative” (PR) or “administrator,” to be responsible for and to administer the probate estate, or guardian or financial custodian (together or separately) for the incompetent person. They can be institutions such as banks, professionals such as attorneys, family members or close associates, or the state itself.
• Probate: The probate estate consists of certain assets determined by state law. Some assets are not probatable, bypassing the probate estate, such as those having named beneficiaries, those that are in trusts (both revocable and irrevocable), personally owned and third-party-owned life insurance not payable to the estate itself and jointly owned assets. “Probate” is the court-filing and supervision of the will and other papers, specified by state law, and court-supervision of the payment of the debts and obligations and the assets’ distribution.
Most jurisdictions offer abbreviated “small-estate” processes for simple estates having few assets, and “memorandum filings” for estates that have almost nothing. Planners strongly advise their clients to structure the ownership of assets in order to avoid “full probate” because probate requires costly inventorying of everything and bureaucratic processing, and thus is to be assiduously avoided in favor of “simple (small estate or memorandum estate filing) probate.” Hooray for inter-vivos (during life) trusts and gifts!
Property sited in other jurisdictions might trigger some form of probate there, too.
• Seeking approval of estate expenses: Most estates must report their operating expenses, including fiduciaries’ and professionals’ fees to be charged against the gross estate, before any distributions are calculated. The court must first approve them, and courts are very strict about what expenses they’ll allow.
• Some estate management tasks: Publication of legally required death or custodianship notices, usually in a local newspaper.
• Inventorying and valuation of assets: Even if full probate is avoided, federal and state estate tax filings might not be. Laws and legatees require accountings. So, there’s bound to be some form of laboriously compiled accountings of the assets and liabilities, and their date-of-death and/or date-of distribution values, with supporting evidence. Significant assets that can’t be adequately evaluated via simpler means might need fee-paid professional appraisal. Here’s where you’re so grateful for the person’s doomsday file and for your diligent discovery detective work!
Notifications to businesses, institutions, agencies, creditors, debtors, sources of entitlements.
Filing for, and collection of, payments receivable from institutions, benefit plans, entitlements.
Collection of accounts receivable from personal loans, business or professional agreements, and business transactions.
Pursuing unresolved health, disability and property insurance claims.
Pursuit until completion of pending legal, judicial, litigation actions and judgment decrees.
Claiming the proceeds of life insurance and annuities not contractually payable to named beneficiaries.
• Compiling, filing, paying, collecting refunds of taxes, representing the estate before the tax authorities: All kinds — property, excise, payroll, income, gift, estate, inheritance — federal, state(s), maybe foreign government(s). Income taxes include: personal tax for the year of death; the estate for the year of death and all subsequent years until closing; irrevocable and irrevocable-after-death revocable trusts, and business entities other than corporations filing their own tax returns.
• Non-probate official filings: To change the payees for entitlements benefits on agency records, to update court records where the death or incompetence affects future payments under a court decree (examples: alimony/child support judgments), to change tax status, to petition for changes in existing and future obligations, bankruptcies, etc.
Required disclosure about estate management activities to parties of interest to the estate, such as the legatees and the heirs who are entitled to assets by law in intestate (no valid will) estates.
Verification and payment of debts, in the legally prescribed order of priority or proportion in case of insolvency. Some creditors enjoy legal priority status over others when the estate can’t pay all creditors in full.
Pursuit of any claims against others, for losses, negligence, damages and the like.
• Transferring property titles to the distributees: The major, time-intensive and highly detailed task, usually requiring proof of the right to transfer and re-register securities, real estate deeds, third-party life insurance and annuity policy ownerships, vehicle titles, bank account authorizations and lots more. This might include items that aren’t probatable but are estate items that must be managed. Examples: Joint ownerships, life insurance and annuities on the lives of others, some employee benefits, IRA’s, tax-sheltered college savings plans, distributions mandated by provisions in the person’s trusts and property that’s either collaterally (conditional and terminable) or absolutely (permanent, not revocable) assigned.
Dealing with the client’s trusts and business entities, most of which aren’t part of the probate estate, but are inseparably intertwined with it.
Distributions to specific legatees named in the documents to receive specified assets before residual legatees have any rights, after costs, taxes and creditors’ claims are covered.
Distributions of the remaining net assets to the residual (last in line after everyone else) legatees, heirs and intestate distributees. This usually is the last item before closing, except in the fortunate circumstances where there are plenty of available assets to more than cover all costs, and it’s clearly safe to make interim partial distributions. Any unwanted, rejected or leftover items can be trashed, donated (with tax benefits) or sold via “garage-sale” liquidators or used-merchandise dealers and consignment shops.
Yes, admittedly all of this is stressful and under pressure at an emotionally charged time. Here, “liquidators,” small local firms who take care of the household and its contents, can be a welcome service. For fee or commission, and working with your fiduciaries and with the benefit of your estate operators’ manual, they can do vexsome functions, such as selling or distributing the assets, and repairing and preparing the house for sale. Your realtor and estate lawyer know who they are and the unethical ones to avoid.
• And finally: closing! After all the estate’s business is done, final tax returns filed, challenges finished and accountings filed and approved, the deceased’s estate can close. Note, however, the person’s independent other entities, such as irrevocable trusts, agreement-governed partnerships and corporations can continue; they are independent of the estate.
Still with me? Nice going! Next time: How you, too, can understand what the documents, lawyer and judge are saying. Meanwhile, let’s hear your ideas.