Your Loved One Dies. You’re in Charge of Settling Their Estate. What Happens Next?
November 4, 2019 | Sherrard Roe Blog I Carla L. Lovell
I was recently asked to speak about estate administration to a group of individuals, many of whom were familiar with the process of creating a Will and/or Revocable Trust and executing beneficiary designations on life insurance and retirement accounts. However, many of them had not experienced serving as an executor or actively administering an estate after a death. By its nature, the experience of serving as executor or trustee occurs at an emotional time when a person is dealing with the loss of a beloved family member, so it can be helpful to understand how the process often unfolds.
Since I received positive feedback from these individuals, I thought I would share my talk with the Sherrard Roe Blog readers. Before we discuss the estate administration process and how it often unfolds, however, it is helpful to review the five ways assets may be transferred on death.
Five Ways that Assets May be Transferred on Death:
- Assets may pass by a Last Will and Testament that must be submitted to the Probate Court for the appointment of an Executor so that the Executor is authorized to take control over and administer the estate assets. Assets that are owned in the decedent’s name that do not have a joint owner or beneficiary designation will pass by the Will as part of the probate process.
- If there is no Will, but there are assets in the decedent’s name that do not have a joint owner or beneficiary designation, then the probate process will still be needed, but rather than appointing an Executor, the Court will appoint an Administrator to administer the intestate estate of the decedent
- Assets may pass by a Revocable or Living Trust that names a Trustee to administer the trust assets outside of probate
- Assets may pass by beneficiary designations on life insurance or retirement accounts or by pay on death or transfer on death designations on bank or brokerage accounts that require submission of a death certificate and other paperwork by the beneficiary to transfer the assets/accounts outside of probate
- Assets may be titled in joint ownership with right of survivorship so that they pass to the survivor by operation of law. For joint bank or brokerage accounts, the submission of a death certificate is generally all that is needed to remove the deceased co-owner’s name from the account
In many estates, assets may be transferred in more than one of these five ways.
If all of the assets are either jointly owned or beneficiary designated, a formal probate process may not be needed. Alternatively, a more limited process may be used depending on the circumstances.
Keeping in mind these five ways that assets may be transferred at death, let’s walk through the ten steps that most commonly occur in an estate or trust administration. Some of these steps may be taken simultaneously.
Ten Steps That Occur Most Commonly in Estate or Trust Administration
Step 1 – Locate the original Will and/or Revocable Trust, if any, and obtain death certificates.
Step 2 – Identify the decedent’s assets, how they are titled, and whether there are beneficiary designations. Identify debts, if any. Hopefully, you will know where the decedent kept financial records and important papers and can obtain bank/brokerage/life insurance statements and a copy of the decedent’s last tax return that will help you develop an inventory of the decedent’s assets and liabilities. You may even have existing relationships with the decedent’s bankers or financial advisors who will share information about assets, titling and beneficiary designations with you.
Step 3 – Take the information you gathered in Steps 1 and 2 to the decedent’s estate attorney. You should also take along the names and addresses of the decedent’s heirs at law as well as beneficiaries under the Will or Revocable Trust. The estate attorney will help you determine whether a full probate of the Will is needed. If there is a funded revocable trust, the attorney will help you with the necessary paperwork to allow the successor trustee to gain control of the trust and administer and distribute the trust assets outside of probate.
Step 4 – If the Will needs to be probated or if an intestate administration is needed, the attorney will prepare the necessary paperwork to submit to the Probate Court and have you appointed as Executor or Administrator. The Court will issue Letters Testamentary or Letters of Administration and your estate attorney will obtain a taxpayer ID number for the estate. This process can take a couple of weeks depending upon the Court’s caseload.
Step 5 – With the Letters Testamentary/Letters of Administration and the EIN, you will be able to move the decedent’s bank and brokerage accounts into accounts in the name of the estate. Prior to probate if you were unable to obtain all the information you need about the decedent’s assets, providing the Letters Testamentary to various banks/brokers will allow them to speak to you more freely. If the decedent owned real estate or business interests that must be liquidated, you may begin that process during this step. If you are serving as successor Trustee of a funded Revocable Trust, you will administer and wind up the decedent’s affairs through the trust account rather than an estate account.
Step 6 – If the decedent had significant or questionable debts, inform the creditors of the need to file a formal claim in the probate proceeding. For modest or unquestionable debts, a formal claim may not be needed prior to payment.
Step 7 – For beneficiary designated assets, coordinate with the beneficiaries to provide the death certificate and paperwork to the appropriate authority in order to collect insurance proceeds or transfer retirement or other assets.
Step 8 – Contact the decedent’s accountant to arrange for the filing of the decedent’s final income tax return and any estate or trust income tax returns that may be needed. Your estate attorney or accountant will also help you determine whether a federal estate tax return is necessary.
Step 9 – Advise with the estate attorney concerning timing of distributions to beneficiaries, particularly if there are significant debts or if the estate may be subject to estate tax. Generally, the household furnishings and other personal property may be distributed fairly soon after the administration process begins assuming appropriate records are maintained regarding the distributions. Specific bequests are generally paid within 1 year of the decedent’s death. Interim distributions may be made to the residuary beneficiaries during the course of administration so long as sufficient assets are retained to cover debts, expected taxes and administrative expenses.
Step 10 – Once all of the assets have been gathered and/or liquidated, all debts have been paid, all tax returns have been filed, all administrative expenses have been paid, and the assets have been distributed, the estate attorney will prepare documents for the beneficiaries and the Executor to sign acknowledging that the estate was properly administered. These will be filed with the Probate Court to close the estate.
I hope this brief review is helpful to you. How long the process takes will depend upon the nature and complexity of the assets and debts, whether the estate is subject to estate tax, and whether the beneficiaries get along. If there are complex assets to unravel or liquidate, significant debts to resolve, a taxable estate requiring a federal estate tax return and possible audit, or conflict among the beneficiaries, the process may take years. Whether the estate/trust administration is simple or complex, Sherrard Roe has an experienced group of estate and trust lawyers who can help you work through the process successfully.
