CENTER FOR PROBATE & ESTATE ADMINISTRATION

Probate and Estate Administration – Overview

Estate administration is the process of handling the estate of a deceased person, which includes collecting assets, making an inventory and appraising those assets, paying and collecting debts, filing and paying estate taxes and income taxes, and distributing the remaining assets to the beneficiaries of the estate.  An experienced probate lawyer can simplify the process for the family of the deceased person.  If you need help in the administration of an estate, feel free to call our firm for a consultation.

Probate

Probate refers to the court process of handling the estate of a decedent.  This process covers any assets of the decedent that are in that person’s name at his or her death.  The probate process does not control assets in the name of the decedent’s living trust or accounts which have a specifically named beneficiary.  If there is a will, the court process will determine if the will is valid and the court will oversee the administration of the estate by the executor (the person appointed in the will to handle the estate).  If there is no will, or the will is invalid, the court will appoint a person or trust company to act as the administrator of the estate.  If there is a will, the net assets in the estate will be distributed according to its terms.  Absent a valid will, the net assets in the estate will be distributed according to the state’s laws of intestacy, which many times may give other relatives a right to assets in the estate that perhaps the decedent did not desire.

Duties of the Executor or Administrator

The executor (the person named in the will to handle the estate) or the administrator (the person or trust company appointed by the court to handle the estate where there is no will) has many of the following duties:

• Collecting the assets
• Making an inventory of all assets of the estate
• Obtaining an appraisal of the assets
• Collecting any payments or debts owed to the estate
• Paying any debts owed by the estate
• Filing and paying federal and state estate taxes
• Filing and paying the final lifetime income tax returns, as well as any income tax returns for the estate
• Providing an accounting to the beneficiaries showing the assets collected and payments made
• Distributing the assets of the estate to the beneficiaries listed in the will or absent a valid will, to the beneficiaries set forth by statute

The executor (or the administrator in the event that there is no valid will) of the estate owes a duty to the beneficiary, which is called a fiduciary duty.  This means that the executor or administrator must act in the best interests of the estate and cannot favor one beneficiary over another.  The executor or administrator cannot take an action that does not benefit the estate or is against the terms of the will.  The executor or administrator must also invest as a prudent investor would and not invest in risky assets.

The Preservation of Estate Assets

One of the duties of the executor or the administrator is to preserve the assets, which include making appropriate choices, such as determining ways to reduce estate taxes, to retain more wealth to distribute to the persons named under the will.  There are a number of choices or elections available, such as:

• Whether to deduct administration expenses on the estate tax return or the estate’s income tax return, as these expenses can only be deducted in one return or the other;
• Determine what income tax opportunities there may be on the decedent’s final income tax return;
• Determine if the estate should elect the alternative valuation date of six months after the date of death,  or use the date of disposition of assets;
• Determine if certain valuation discounts apply;
• Determine if the estate tax can be paid in installments at a low rate of interest, due to a business being included in the estate.

Probate and Non-Probate Assets

Probate assets are those assets that are still in the name of the decedent at his or her death.  These are the assets that are subject to court administration.  Depending on the jurisdiction, probate can be an expensive and long process.  As a result, beneficiaries may have to wait from one to two years to receive the gift made to them in the will.

Non-probate assets do not have to go through the probate process.  These assets are directly distributed to the beneficiary.  However, if the person who is named as a beneficiary does not survive, these may become assets of the probate estate.  Some examples of non-probate assets are:

• Property owned in joint tenancy or tenancy by the entirety with rights of survivorship;
• Bank accounts that are listed as payable on death (POD);
• Life insurance policies that designate a specific beneficiary other than the decedent’s estate;
• IRA’s, 401(k)’s and other retirement plans that name a beneficiary other than the decedent’s estate.

Living Trusts

Living Trusts are revocable trusts that are not subject to probate.  The trust document states how and when the property owned by the living trust will be distributed.  The settlor, or maker of the trust, controls what is done with the assets in the trust name while he or she is still alive, including making lifetime gifts of some of the assets or whether to keep or sell assets in the trust name.  The settlor can change the trust during his or her lifetime, or terminate it at any time prior to death.
Upon the death of settlor, the assets of the trust are not considered probate assets since the title to the assets are held in the name of the trust and the terms of the trust, not the will, control.  The trustee is in charge of the administration of the trust and the distribution of the trust in line with the provisions of the trust.

Many people use a living trust to avoid having their assets be subject to probate, but the assets need to be titled in the name of the trust to avoid probate.  It is also important to have a pour over will in addition to the living trust, to cover any assets that are not titled in the name of the trust, such as an inheritance that was not yet retitled into the trust name.

Conclusion

The administration of an estate requires a keen understanding of the probate process, as well as a good knowledge of the tax laws.  If you need help in administering an estate, contact an attorney in our office who are all experienced in probate and estate administration