The Basics of Estate Administration
When a person dies, all of the decedent’s possessions, including real estate, cars, money, stocks, personal belongings, etc. (the “estate”) must be collected, managed, and distributed. Estate administration is the process of managing the estate, paying any debts and taxes, and distributing the remaining property to the heirs of the estate. Below are the basics on estate administration, including what it means to be an executor of an estate, and how a person’s assets are distributed upon their death.
What is Estate Administration?Estate administration refers to management and settlement of the estate of someone who dies. Administration of estates is usually handled by an executor, who is named in the will, or, if there is no will appointing an executor, under court supervision. In the event there is no executor named, the court will appoint an administrator to handle the estate administration. The duty of the executor/administrator is to distribute the decedent’s estate in accordance with the decedent’s wishes and applicable laws. The responsibilities of an executor/administrator largely consist of collecting the decedent’s assets, paying the debts and claims against the estate, paying the estate taxes, and distributing the remainder of the estate appropriately. Estate administration is a detailed process, and can require managing a significant amount of paperwork and deadlines. The executor/administrator of an estate should keep organized and thorough estate records from the decedent’s death onward.
Managing, Inventorying, and Settling the EstateEstates are administered through a certain type of court, referred to as a “probate court.” The executor is required to inventory the decedent’s assets for the court and the decedent’s heirs. This typically requires that an executor identify and then value any real estate in the estate, bank and retirement account balances, business interests, and personal property, such as vehicles and jewelry. Oftentimes, for real estate and personal property, appraisals are needed. The executor also needs to identify how each asset is owned (i.e. individually, jointly, as a tenant in common, etc.).
Certain property falls outside the estate for administration purposes, the most common being real estate that is jointly owned. In that case, ownership of the real estate passes solely to the surviving joint owner—this is typically case for the married couples. Other examples of property that falls outside of the estate includes discretionary death benefits from pension funds, accounts with certain financial institutions subject to a nomination, and the proceeds of life insurance policies which have been written into a trust. Most of the time, trust property is not included in the estate, but that ultimately depends on the terms of the trust.
Once the executor identifies and values the decedent’s assets, he or she must then identify and value the decedent’s liabilities. This includes identifying all debts owed by the decedent personally at the time of death, determining if the debts are legitimate, and, if so, satisfying those debts. The executor is also responsible for paying the ongoing expenses of administering the estate, including legal fees, accounting fees, utilities, insurance premiums, and mortgage payments. After the decedent’s debts and the estate expenses have been paid, the next step is to pay any income taxes and death taxes that may be due on the value of the remaining assets.
Notably, obtaining and reviewing the decedent’s past income tax returns is a good start when beginning the estate administration process.
Distributing the EstateMaking distributions of the estate assets to the estate beneficiaries is the very last step in settling the estate. Prior to making any distributions to the decedent’s heirs, the executor ensure that all debts, expenses, and taxes have been paid, or that enough assets have been set aside to pay them. If distributions are made to estate beneficiaries and all debts, expenses, and taxes have not been paid or accounted for, the executor may have to pay these expenses out of his or her own pocket. If administration of the estate is complex and expected to take more than a year, the executor should work closely with an estate attorney and an accountant to set aside enough assets to pay the ongoing estate expenses and make distributions to the estate beneficiaries in multiple phases.
Administering an estate is a tremendous responsibility and can be a complex process with many legal pitfalls along the way. To ensure the process is completed as accurately and efficiently as possible, an executor should have help from a knowledgeable estate planning attorney. Find an experienced lawyer by quickly posting a short summary of your legal needs on www.legalserviceslink.com, and let the perfect lawyer come to you!
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