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.
Estate administration involves a variety of tasks. These include:
- Gathering the assets of the estate
- Paying the decedent's debts
- Filing tax returns
- Distributing the remaining assets to beneficiaries
Some tasks are similar across state lines. But probate law varies according to state law, too. Additionally, the estate administration process can vary widely. The state's probate courts provide information on local probate laws.
A last will and testament nominates an executor to handle the estate administration process. But if there is no will, anyone can ask the court to be in charge. They can request to serve as the estate's executor or an administrator.
Once the court process is complete, the executor or administrator is usually called 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 personal representative administers the decedent's estate in the state where the decedent resided at death.
If the decedent owned real estate in another state, an ancillary probate proceeding may be necessary. The ancillary proceeding handles only the assets located in that state. An estate attorney can guide you in determining whether you need to probate in multiple states.
How Will an Estate Be Administered?
How a personal representative administers an estate depends on several factors. These include:
- Size of the estate
- Number of heirs or beneficiaries
- The complexity of the will and estate
These are a few factors that could determine the process used to administer the estate.
- Probate the will: If the decedent died testate (with a will), the nominated executor proceeds to the court process in that state. They must probate the will or have the will declared a valid will by the probate court judge. Once the judge declares 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 to small estates under a specific dollar amount. This process involves several steps, including filing basic paperwork, paying creditors, and distributing the remaining property. They must have the court approve the distribution. A small estate administration allows assets to pass through an affidavit. An affidavit is a sworn statement filed with the court.
- Waiver of full administration: In some states, the administrator can file a Waiver of Full Administration form if the estate passes to only one heir. If approved, it's unnecessary to inventory assets or complete accounting of estate property. The administrator needs to certify that there are no outstanding debts.
- Regular estate administration: In some states, an estate must go through the regular estate administration process. This can occur if the estate is large or has more beneficiaries than one. The estate will go through the regular estate administration process when this happens.
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. First, the would-be estate administrator or the nominated executor must get on the court calendar. They must file several 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 or beneficiaries. The would-be personal representative must notify heirs and beneficiaries that they have:
- Filed to open an estate
- Filed the decedent's will and are seeking the position of personal representative (Learn more about the filing process)
The first task in a legal probate proceeding is appointing someone to manage the estate process. The individual also manages the decedent's property. The personal representative may be:
- One person
- Two or more individuals
- A law firm
- A bank
The decedent is said to have died intestate if there was no will. Under intestacy laws, the court will appoint someone from among those eligible to fill the role (administrator). This individual is usually a surviving spouse or family member.
You will receive an order once the probate court judge has appointed you. You will receive Testamentary Letters (executors) or Letters of Administration (administrators). These legal documents authorize you to work on the estate's behalf.
Understanding Your Fiduciary Responsibility
Before you begin the estate administration process, it's helpful to understand your fiduciary duties and responsibilities. As the personal representative, you must reasonably care for the estate's assets. You also have a duty of loyalty and good faith to all of the estate's beneficiaries.
One of your first tasks will be getting the estate's tax identification number in compliance with tax laws. Next, you will set up a new, separate bank account. Money from a variety of sources goes into this account. These funds belong to the estate and are not subject to beneficiary designations. The estate account can include funds from:
- Existing checking accounts
- Savings accounts
- Any life insurance proceeds that don't have a named beneficiary
- Money owed to the decedent
Your state's laws may define other fiduciary duties. A probate lawyer can help you understand these responsibilities. The following information may help you prepare for the first meeting with a probate attorney.
Managing the Estate: Taking Inventory
The personal representative will need to document the decedent's assets. They will manage the financial affairs of the estate. Thus, the personal representative must fully understand the decedent's assets.
This documentation is called 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 accounts, IRAs, 401ks, retirement plans, and pensions
- Insurance policies held with the insurance company if the estate is the beneficiary
- 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 at the end of life
The personal representative must inform the decedent's creditors of the decedent's death.
If there is enough money to pay the creditors, the personal representative will pay them from the estate's bank account. The personal representative may sell estate assets if the account needs more money. Typically, state law defines the order for selling the estate's assets. The following is a general order for selling assets:
- 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 not be available to pay certain debts. You should confirm the laws of your state with a probate attorney. For example, payments on life insurance policies to a named beneficiary are not accessible by creditors.
In most states, creditors are paid in a specific order, also defined by state law. Generally, the personal administrator makes payments in the following 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 insufficient funds in the estate to pay all the debts, the personal administrator pays those with higher priority first. 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. They should deposit payments into the estate bank account. State law defines how long debtors have to pay the debt. The personal representative should notify any debtors of the deadline.
The personal representative may need to bring a lawsuit to collect 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 estate tax return
- Federal gift tax return
- The estate's income tax return
- Any state tax return
The personal representative is responsible for filing these tax returns. During the decedent's lifetime, they must engage in tax planning as part of the estate planning process. This will help determine whether there are ways to reduce taxes owed at death and give them time to implement any strategies.
Distributing the Estate
If assets remain after creditor payments, the personal administrator distributes assets according to the decedent's will. They distribute specific assets to named beneficiaries in the will first. If there is no will, state intestacy law will determine who will receive assets.
If someone contests the will, the personal representative may have to defend the will in probate court. The same is true if someone otherwise challenges the distribution of assets.
Comprehensive Estate Planning
Estate planning is related to probate and occurs during life. One of the most thoughtful actions you can take for loved ones is to ensure your estate planning documents are in place. These legal documents provide your family members and loved ones with directives. Knowing your wishes when you can no longer make them known due to death or incapacity goes a long way.
Estate planning attorneys are the attorneys who help individuals with their estate plans. They will discuss your situation and create the right plan for you. In the end, you will have a comprehensive set of documents. Typical documents in a basic estate plan include:
- Last will and testament
- Power of attorney, including a durable power of attorney or financial power of attorney
- Living will
- Revocable living trust
- Advanced health care directives
You can address issues related to the following:
- Long term care
- Minor children
- Individuals with special needs
- Any other estate planning issue
Your set of documents and needs addressed depends on your circumstances. You can contact an estate planning attorney to assist with estate law and a plan. If you are in a position where you are helping a loved one probate an estate, getting legal advice from a probate lawyer is a good idea. These attorneys practice similar specialties but are slightly different.
Get Legal Advice From a Probate Lawyer
If you're administering an estate, you have a lot of responsibility. This is where the decedent's estate planning pays off after death. You will serve as a fiduciary over the estate. You will deal with family members and the court.
Probate can be a complex process. If you need help, getting professional legal advice can be well worth the money. A local probate attorney can help you throughout the process and bring you peace of mind.
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