Whether you are called an executor or administrator, or anything in-between, your job is relatively the same. Marshal the assets of the estate, pay the legitimate claims of the decedent, dispose of the illegitimate claims against the decedent, distribute the net estate pursuant to the terms of the dispositive instrument and/or state law, as the case may be, prepare the necessary estate tax return(s), and file an inventory with the court.
1.Marshaling the assets of the estate.This entails:
a.notifying the decedent’s asset companies – banks, credit unions, brokerage companies, financial institutions, etc. – of the decedent’s death.
b.opening a checking account in the name of the estate – e.g., “Estate of John Doe” – so that you will have access to estate money to pay the estate expenses. You will need the Taxpayer Identification Number to open accounts in the name of the estate.
c.liquidating assets for deposit into the estate checking account or determining whether assets can be re-titled into the name of the decedent’s estate;
d.notifying the decedent’s income sources. If the decedent was working, contacting HR at the decedent’s employment to arrange for back pay and future pay.
e.contacting benefits companies – retirement accounts, annuities, life insurance, etc. – and receiving the forms. If the decedent/estate is not the beneficiary of these accounts, the asset company will likely not talk to you. In that case, you merely should inform the beneficiaries of the existence of the account and who to contact to get the proper form(s).
To locate decedent’s assets, you should get and thoroughly review the decedent’s:
ii.financial statements, including premium statements (e.g., insurance policies, annuity contracts, etc.);
iii.checkbooks and passbooks;
iv.safe deposit boxes;
v.income tax returns (speak with the decedent’s accountant or use Form 4506-T to get a copy of the decedent’s income tax returns);
vii.unclaimed funds in the states where the decedent lived.
2.Pay the legitimate claims against the decedent.This entails:
a.contacting the decedent’s credit card companies, notifying them of the decedent’s death, and determining how much is owed.
b.canceling the decedent’s expense accounts (e.g., utilities, credit cards, cable, cell phone, subject to the needs of the family).
c.determining if the decedent had any private debt (e.g., private loans, IOUs, etc.
d.identifying the decedent’s real property and determining the proper debt of the property – e.g., mortgage payments, real estate taxes, co-op maintenance, homeowner association dues, etc.
e.making arrangements to pay the legitimate, unavoidable debt.
f.Weeding out the illegitimate claims and/or determining which debt will not have to be paid back.
3.Dispose of the illegitimate claims against the decedent.This entails:
a.Deciphering the real debt versus the fake debt.
b.What to do when you receive a claim against the estate? A claim filed against an estate does not, on its face, mean anything. You need to determine whether the claim is legitimate or illegitimate. If illegitimate, you do not need to respond. It is not your duty to perfect the creditor’s claim. A claim ignored is a claim rejected. If rejected, the creditor will have to bring a proceeding, typically an accounting proceeding, to prove the claim is legitimate. Regardless, however, you are precluded from distributing the net estate (see Paragraph 4(a) below) until the claim is disposed of, or, at least, leave enough cash in the estate to pay the claim, if necessary.
4.Distribute the net estate pursuant to the terms of the dispositive instrument and/or state law, as the case may be.
a.A creditor of the decedent has seven (7) months from the date Letters are issued (or, on or before the date fixed in the published notice to creditors) to file a claim against the estate. That does not mean the creditor is necessarily out-of-luck if a claim is filed against the estate after the seven (7) months, if there is value left in the estate. In other words, you should not distribute anything from the estate until the expiration of the seven (7) months. If you make a distribution from the estate before the expiration of the seven (7) months, and if the claim against the estate is legitimate, then you will have to get back enough from the beneficiaries to pay the claim. If you are is unable to get back enough from the beneficiaries to pay the claim, then you may be personally liable for the claim. If, however, you make a distribution from the estate after the expiration of the seven (7) months but before a claim against the estate is filed, then you do not have to get anything back from the beneficiaries. The onus is on the creditor to file his, her, or its claim within the seven (7) months. If, on the third hand, the creditor files a claim against the estate after the expiration of the seven (7) months but before you distribute the estate, the creditor can have his, her, or its claim (if a legitimate claim) paid out of the estate (or whatever is left of the estate).
b.Once the assets of the estate have been marshaled, the legitimate claims of the decedent paid, the illegitimate claims against the decedent disposed of, you can distribute the net estate pursuant to the terms of the dispositive instrument and/or state law, as the case may be. If a testamentary trust(s) is created under the terms of the Will, then you will create the trust account and hand the assets of the trust over to the trustees of the trust. If distributions to the beneficiary(ies) are outright under the terms of the Will, then you will make arrangements with the beneficiary(ies) to take possession of the assets.
5.Prepare the necessary estate tax returns.Currently, the NYS estate tax exemption amount is $4,187,500. The federal estate tax exemption amount is $5,450,000. If the decedent’s taxable estate (as opposed to probate estate) is greater than $4,187,500, then you must prepare and file the decedent’s NYS estate tax return and pay whatever NYS estate tax is due. If the decedent’s taxable estate is greater than $5,450,000, then you must prepare and file the decedent’s NYS estate tax return and federal estate tax return and pay whatever NYS and/or federal estate taxes are due. Federal and NYS estate tax exemption amounts will increase until 2019, at which time it is expected that the two rates will become equal.
6.File an inventory with the court.Once the assets of the estate have been marshaled, the legitimate claims of the decedent paid, the illegitimate claims against the decedent disposed of, and the net estate has been distributed pursuant to the terms of the dispositive instrument and/or state law, as the case may be, you must file an inventory of assets with the court. You cannot be discharged from your duties without filing an inventory of assets and failure to file an inventory of assets will (eventually) lead to revocation of Letters. If an estate tax return was filed for the decedent’s estate, you can attach the estate tax return to the Inventory of Assets without having to complete the entire form for the Inventory of Assets.
Top Mistakes Fiduciaries Make (Liability Landmines).
1.The common (but not small) mistakes:
a.Not marshaling all of the assets.
b.Not determining all of the debt.
c.Not disposing of all of the debt.
d.Not paying the expenses on time, including the estate taxes owed by the decedent’s estate.
e.Making distributions prior to the seven (7) months.
f.Paying the decedent’s creditors without confirming the claim(s).
g.Not listening to the beneficiary(ies) of the estate.
h.Not heeding the concerns or needs of the beneficiary(ies) of the estate.
2.The subtle mistakes:
a.Not investing the assets of the decedent’s estate properly.
b.Not continuing or winding down the decedent’s business.
c.Taking too long to administer the decedent’s estate.
3.The BIG mistakes:
a.Wasting (or acting negligently with) the assets of the estate.
c.Self-dealing with the assets of the estate.
d.Embezzling the assets of the estate.
When navigating through estate and trust administration, the good fiduciary must be aware of his or her role, as well as his or her duties to the decedent, the decedent’s estate, and the beneficiaries of the decedent’s estate. Estate, Will, and trust conflicts will arise even in the best of estate plans. A fiduciary should not compound the problem by creating further conflict, or being the reason for the conflict.
If you would like to discuss your role as fiduciary of the estate, or need assistance in representing an estate, call us at (877) 207-6803.