How to Administer an Estate
Estate administration involves gathering the assets of the estate, paying the decedent's debts, filing tax returns, and distributing the remaining assets to beneficiaries.
While the work that must be done is the same in every state, there are enough differences in state law regarding the estate administration process that it's wise to review the laws for probate in your state. You can read about each state's probate courts to find links to your local laws.
There are several important terms related to the person that will be in charge of the estate administration process. A will nominates an "executor" to be in charge of the estate administration process. But if there is no will, anyone can ask the court to be in charge and serve as the estate's executor or an administrator.
Once the court process is complete, the executor or administrator is usually referred to as the “personal representative." (This article will use the term personal representative.)
Where Does Administration of the Estate Take Place?
State law governs the transfer of real estate. Generally, the state in which the decedent resided at the time of death will be the state where the decedent's estate is administered.
If the decedent owned real estate in another state, however, you may need to conduct a scaled-back “ancillary probate proceeding" in that state. This is in order to sell or distribute that piece of property. The ancillary proceeding handles only the assets located in that state.
How Will an Estate Be Administered?
The size of the estate, the number of heirs or beneficiaries, and the complexity of the will and estate are a few of the factors that could determine the process that is used to administer the estate.
- Probate the Will: If the decedent, died testate (with a will), the nominated executor will need to go through the court process in that state. They need to probate the will or have the will declared a valid will by the probate court judge. Once the judge has declared the will valid, the executor (now called the personal representative) can begin the estate administration process.
- Voluntary Administration: In some states, the administrator can petition the probate court to allow a simplified version of the probate proceeding. This only applies if it is a small estate consisting of the decedent's personal property and the value of the estate is under a certain dollar amount. This process involves filing some basic paperwork, paying creditors, and then distributing the remaining property and having the court approve the distribution. The court's role may never require a hearing, but only a review of paperwork. If a small estate administration is applicable, the parties who are entitled to receive the decedent's assets may collect those assets by way of an "affidavit," a sworn statement that is filed with the court.
- Waiver of Full Administration: In some states, if the estate is passing to only one heir, the administrator can file a Waiver of Full Administration form. If approved, the administrator does not need to take an inventory of assets or a complete accounting of estate property, but simply certifies that there are no outstanding debts.
- Regular Estate Administration: In some states, if the estate is too large for voluntary administration and has more beneficiaries than one, then it will go through the regular estate administration process.
The Court Hearing: Naming an Executor or Administrator as the Personal Representative
Your state may require a hearing before you can be named a personal representative. In order to get a first court hearing on the schedule, the would-be estate administrator or the nominated executor in the will must file a number of documents, including:
- The will (if the decedent made one)
- The death certificate
- An estimate of the value of the estate (if the decedent had no will)
The would-be personal representative will have to notify all heirs and/or beneficiaries that they have:
- Filed to open up an estate
- Filed the decedent's will and are seeking the position of the personal representative (Learn more about the filing process)
The first task in a legal probate proceeding is appointing someone to manage the estate process and the decedent's property. The personal representative may be:
- One person
- Two or more individuals
- A law firm
- A bank
The personal representative may have been nominated by the decedent in their will. If there was no will, the decedent is said to have died intestate. The court will appoint someone from among those who are eligible to fill the role (administrator). This is usually a surviving spouse or family member.
Once the probate court judge has appointed you, you will receive an order and either Testamentary Letters (executors) or Letters of Administration (administrators) that authorize you to conduct the work you will now begin.
Understanding Your Fiduciary Responsibility
Before you begin the process of estate administration, it's useful to get a clear understanding of your duties and financial responsibilities on behalf of the estate. As the personal representative of an estate, you have a duty to exercise reasonable care with the assets of the estate. You also have a duty of loyalty and good faith to all of the beneficiaries of the estate.
One of your first tasks will be to get a tax identification number for the estate and then to set up a new, separate bank account. Money from existing checking accounts, savings accounts, any life insurance proceeds that don't have a named beneficiary, and any money owed to the decedent will go into this account.
Your state's laws may define other fiduciary duties. A probate lawyer can help you understand these responsibilities. If you will be meeting with a probate attorney, here is some information you need for that first meeting.
Managing the Estate: Taking Inventory
After being appointed, the personal representative will need to document all of the decedent's assets. This documentation is referred to as an "inventory." The inventory will include:
- All real estate and real property owned anywhere in the world
- All personal property
- Bank accounts, investment accounts, annuities
- Retirement funds, IRAs, 401ks, pensions
- Outstanding loans or monies owed to the deceased
- Contents of safe deposit boxes or storage units
The personal representative will also document all of the decedent's debts:
- Credit card debt
- Mortgages and car loans
- Personal loans
- Taxes owed for the last year of life
The personal representative must inform all of the decedent's creditors that the decedent has died.
If there is enough money to pay the creditors, the personal representative will pay them from the estate's bank account. If there is not enough money in the account, the personal representative may sell assets of the estate in the order defined by state law. Typically, that is:
- Any property not identified in a will or trust (intestate property)
- Any assets included in the will as “leftover" or remaining property (a testamentary gift)
- General gifts to heirs named in the decedent's will that aren't a particular item
- Specific gifts to heirs
Assets that pass to a beneficiary outside the probate process may or may not be available to pay certain kinds of debts. You should confirm the laws of your state with a probate attorney. Payments on life insurance policies to a named beneficiary are not accessible by creditors.
In most states, creditors are paid in a certain order, also defined by state law. Generally, payment is made in this order:
- Costs to administer the estate, funeral costs
- Last medical bills or care bills
- Wages for those who performed labor for the decedent within 60 days of death
- Federal tax and state tax
- Real estate mortgages and liens (in order of priority)
- Other debts
If there are not enough funds in the estate to pay all the debts, those earlier in the list are paid first and those lower down the list receive a partial share or none at all.
The personal representative is responsible for collecting debts owed to the deceased. Payments should be deposited into the estate bank account. State law defines how long creditors have to pay on the debt owed. The personal representative should be sure to include that information in any letter sent to a creditor asking for payment.
The personal representative may need to bring a lawsuit in order to collect on unpaid debts.
File Tax Returns and Pay Taxes
The personal representative will file all necessary tax returns. This includes the deceased's final income tax return, federal tax return, state tax return, and the estate's tax return.
Distributing the Estate
If there are any assets left after creditors have been paid, those assets are distributed according to the decedent's will. Specific assets given to named beneficiaries in the will are distributed first. If there is no will, state law will determine how assets are distributed.
If the will is contested, or if there is any dispute over how to distribute assets, the personal representative may have to defend the will or their actions in probate court.
Get Legal Advice From a Probate Lawyer
If you're administering an estate, you have a lot of responsibility to family members and loved ones and to the court. Probate can be a complex process. If you need help, it can be well worth the money to get professional legal advice from a local probate attorney.
Can I Solve This on My Own or Do I Need an Attorney?
- Complex probate situations usually require a lawyer
- A lawyer will take these matters seriously and enforce protections
- Get tailored advice and ask your legal questions
- Many attorneys offer free consultations