The following are some of the general responsibilities common to many estate administrator’s or trustee’s duties (an estate administrator is also known as a “personal representative” or an “executor”). Estate administrators and trustees are “fiduciaries”. Fiduciaries owe the highest obligation to the beneficiaries. Fiduciaries must act in the best interests of the beneficiaries. Reasonable care is not sufficient. Self serving activities or management is not acceptable. Fiduciaries are personally liable for their errors. Bonds and professional insurance are commonly purchased to make sure there is money to compensate people who suffer damage caused by them.
You’ll also note many of the responsibilities can only be met by engaging other professionals.
These could include attorneys, accountants, investment or real estate brokers, appraisers and
the like.
Some of the duties discussed below may not directly apply to the administration of every Estate and Trust. Still, they are identified for your background and information.
What Needs To Be Done When Someone Dies?
11. Identify and care for the personal matters involving the decedent and burial.
23. Locate and secure the original Last Will and Testament, Trust and any other Estate Planning Documents.
34. Secure all other important and official looking paperwork as well as financial documents.
45. Inquire into all benefits payable upon the death of the decedent. This includes accidental death insurance, life insurance, annuities, etc.
56. Notify the post office of the death and arrange for the collection of mail of the decedent so the mail does not pile up at the residence. It is an invitation for thieves.
67. Get the facts about the nature, amount and location of the estate’s assets and liabilities.
78. Engage in an active search for assets that are not immediately identifiable. Now, these requirements are entirely unique to each estate and are as broad or as narrow as the complexity of the decedent’s activities. In other words, it is my practice to inquiry of financial institutions whether there exists bank accounts, assets or debts in the decedent’s name that are on their records and which may have been forgotten or not disclosed by the decedent. You’ll be surprised how many accounts and the amount of money that can be located. Yet, every search has to be limited by reason. For instance, an individual that was raised, lived and died solely in one city and who had not business interests or personal property outside of the city would prompt us to search the financial institutions within that city and its immediate neighbors. Alternatively, if a decedent had relations, business and personal in two cities, then the search would be broadened. This responsibility is paramount. If performed properly the risk of other people “pillaging” the estate shrink to near zero.
89. Provide adequate physical protection for the assets of the estate. Make sure others aren’t using or consuming them. For example, what happens when someone takes and uses the decedent’s car? Or home? Or cottage? Without specific provision in the Will or Trust for that, there is a price that must be paid for the use. Otherwise other beneficiaries’ interest will be reduced improperly.
99. Make sure all insurance is maintained, including fire, liability and other insurance coverage relating to real estate and other tangible property.
110. Open a probate estate where necessary or administer to the trust. Give full and timely notice to all interested parties.
Complete An Inventory
As the estate assets are assembled, they are recorded in a written formal inventory. Next, their values are determined. This may be particularly important to look ahead at potential tax issues that may impact the estate, trust or beneficiaries. The valuations are made by appraisers or other competent and recognized authorities.
Administering To Claims Against The Estate Or Trust
Because of the legal procedure for dealing with claims against the estate or trust and payment of taxes, it usually takes approximately fifteen months to complete the settlement of probate estates and it may take longer if it is subject to payment of federal estate taxes or other complexities are encountered. Trusts may be continued for longer periods of time because they commonly are intended to provide the benefit of continued management of the assets.
Some assets take more time to value and administer. For instance, if the value of a business which does not have a ready market, is required, or if the business needs to be sold additional time will be needed.
Administer To The Assets
Assets are listed in various categories, such as cash, bank accounts, real property, securities, etc. Initially values may be estimated but later, they will have to be determined with accuracy. Liquid assets will be listed separately from non-liquid assets, in anticipation of the sale of some assets to meet cash needs. See our earlier notes about finding, identifying and securing the assets.
Liabilities Of The Estate
Ordinarily there is little difficulty in searching for debts owned by the estate. Creditors are calling for payments, at times even before the assets are collected. The claims are filed with the personal representative and probate court, and if proper, approved. Procedures are set up for contesting improper or invalid claims and those issues are resolved. There are usually specific time periods for that work.
Taxes
Once the assets have been valued and claims understood it’s possible to identify which taxes may apply and to complete a preliminary estimate of the tax liabilities. Tax awareness must accompany nearly every act of a personal representative and trustee. The sale of a security…how and when income or principal is paid to beneficiaries…the exercise of certain elections, such as how to deduct certain expenses…the determination of the most favorable valuation date…all of these will have a significant effect on the amount of tax to be paid. Here’s a brief review of the various kinds of tax returns which may be to be filed:
Last Income Tax Return
Prompt attention must be given to federal, state and city income taxes together with state intangibles or other taxes unpaid for periods prior to death.
Income Tax Returns For The Estate
Income received during the administration of the estate must be reported on special fiduciary tax forms for the federal income tax, state intangibles tax and other taxing authorities.
The Federal Estate Tax
The federal estate tax differs from the state inheritance tax (now also referred to as “state estate tax” in many states) in many ways, including the unified credit, optional date for valuing assets, due dates for filing and payments, and, of course, in the tax rates. The unified credit available to be applied against the federal estate tax has raised the size of an estate passing free from federal estate tax to more than $600,000.
The federal estate tax return is due no later than nine months from date of death, and payments made after that time are subject to interest and additional penalties, in some cases. However, in certain situations, the payment of the federal estate tax may be spread over a number of years.
Finally, the return is subject to audit by the Audit Division of the Internal Revenue office. When the auditing agent approves the return, it is then confirmed by the District Director. If there is any disagreement, I must address the issue.
Other Tax Problems
States impose an “inheritance” tax on the transfer of property resulting from death. The rates and exemptions vary depending on the relationship of the beneficiaries to the decedent. If a Will does not otherwise provide, we must deduct the Michigan inheritance tax from the share of anyone who received a taxable share from the estate.
If a real estate in another state or foreign country is involved, the foreign jurisdiction may impose a tax. There may be other tax problems relating to local real estate taxes and assessments, taxes on stock transfers, and the like.
This description of tax procedures is oversimplified. Nonetheless, it is a vital part of your responsibility as personal representative and mine as your counsel.
The Estates Need For Cash
Federal and state taxes have to be paid when due. Dollars must be available for specific dollar bequests. Other estate debts may also require payment in cash.
Investment Review
Investments must be reviewed. Suitability is the key. Speculating with investments is not right. The positions must be conservative recognizing the need for cash to pay debts and other distributions as they arise and the need to maintain the goals established for the beneficiaries. There is no room for self dealing or profiteering on the part of the administrator or trustee.
Real Estate And Other Property
When real estate is to be sold, the task is delegated to professionals long experienced in this field. Where outside assistance will be helpful, especially in the matter of appraisals, positive action is taken. This is true at all times, when markets are stable, distressed or rapidly appreciating. If other people use or benefit from the real estate or other property they must pay fair value for that use or benefit.
Business Interests And Closely Held Corporations
The liquidation of a partnership interest or the securities of a close corporation – if they are to be sold – pose problems that call for many skills. What are the true values?... Who will buy?... Where can the best price be found?... The questions seem endless. Professional assistance is a necessity.
Surviving Spouse Benefits
The surviving spouse (and in many states, the surviving minor children) have the right to payments from the estate to cover certain living expenses. Also, the surviving spouse may be able to elect against a Will or Trust in the even the decedent eliminated him/her from the estate. Specific notices must be given to the spouse. These are matters that must be attended within the proper times.
Payment To Beneficiaries
Legacies and bequests provided in the Will or Trust need to be made as soon as possible or if a future time is set, they need to made on time. After administrative expenses, taxes and debts and all other legacies are paid the amount remaining is called the residual, or corpus of the estate or trust. The Will or Trust may call for the outright distribution of the residual or it may be left for future management, say by a Trust. But the language must clearly designate this.
Distribution In Kind
There may be certain assets which beneficiaries would prefer to receive in kind, rather than receiving cash after they are sold. If a Will or Trust requires this, it must be done as specified.
Final Accounting and Discharge
The administrator must account to the beneficiaries and disclose the details of financial matters. The form of this accounting must conform to the requirements of the probate court or the details for the Trust (most of which require the application of accounting principles generally accepted for use in circumstances then presenting). Under provisions of the probate code, it may not be necessary to file the account with the court. Still, the accounting must be given to the beneficiaries.
The accounting must be sufficiently detailed. Commonly reports concerning the value of the assets and income are provided at the end of administration and commonly at least annually prior to that time. Reports detailing the payment of debts and administrative expenses, the payment of legacies and the delivery of assets, in cash or kind to the beneficiaries are also provided.
As a prefix to these reports, there is a summery which shows, at a glance, all the essential facts: what was received, what was paid out or distributed and what is left on hand at the closing date of the accounting.
Completing The Task
The accountings must be given to the beneficiaries and others who have a right. All interested parties will be notified in the event the accounting is presented to the court. Any interested party may object to actions taken by the personal representative and request the court to rule upon them. In the even the accounting is filed, it will become a matter of public record, available for all to see. With the court’s approval of the accounting and final settlement of taxes the personal representative will be discharged after the distribution of all the remaining estate assets.
All of the above apply to Trusts too, though the procedure for court review may differ. Still, objections can be raised successfully.
Other Asset Transfers
Note that many decedent’s assets transfer by operation of law. For instance property that is held jointly, i.e., with rights for survivorship, life insurance proceeds payable to a beneficiary other than the decedent’s estate and assets held in trust for the benefit of another are not subject to probate administration and are popular ways to avoid the probate experience. This doesn’t mean that transfers of these kinds are not subject to tax or other administrative or disclosure requirements, they certainly may be. Nor does it mean that many of the duties described above won’t apply. They can. These matters are best reviewed and considered by us if you have any questions or concerns.