What You Should Know about Administering a Family Member’s Estate

May 23, 2017 Estate Planning, Law, Retirement Planning Comments Off on What You Should Know about Administering a Family Member’s Estate

Most of us will, at some point in our lives, be called upon to administer the estate of a departed family member or loved one. While it may seem like an honor to have been entrusted with this responsibility, the reality is often it is a thankless, time consuming job, and even more so if there are disagreements and disputes among the heirs or beneficiaries of the deceased.

Being asked to shoulder the responsibility of administering a decedent’s affairs while still mourning their loss can be challenging. The precise rules and procedures that apply will depend on whether the decedent had a trust that was fully funded, whether probate will be necessary because the either decedent did not have a trust or did not fully transfer all relevant assets into the trust.

It will also depend on which state laws apply as well as the value of the estate. Keep in mind that it is impossible to provide an all-encompassing checklist that applies to each family situation and the procedures may vary greatly depending on if the decedent had a will or a trust. However, here are some general guidelines to keep in mind, some of which may or may not apply depending on the situation:

  1. Seek Professional Advice.   This is something you may only do once in your lifetime and Google is not going to give you all the answers you need.  Also, keep in mind you do not have to go at this alone. Depending on the value of the estate and its complexity, you may want to employ the services of professionals such as attorneys, CPAs, appraisers, etc. to assist in navigating your responsibilities. Typically this would entail an estate attorney, a CPA knowledgeable in estate and income taxes, and a financial advisor, although additional professionals may be needed depending on the situation. Usually, these fees would be paid from the decedent’s estate and so there should be no financial disincentive to seek help if needed. There may be certain actions, decisions, procedures or deadlines that need to be met in a timely manner, which could impact the ability of heirs or creditors to make claims or challenges to the estate. Most people are not aware of these rules and deadlines and so getting the right advice from the start may be good protection for both you and the estate.
  2. Inventory and Secure the Decedent’s Assets & Important Documents. A trustee or administrator of an estate is charged with the duty to assemble, inventory and safeguard the decedent’s assets and important documents. In the immediate aftermath of a death, it could be a chaotic situation with visitors and relatives coming and going and, as the representative of the estate or trust, it is incumbent on you to safeguard the important assets and documents. You will need to determine whether the decedent had a will or trust, and assemble all important documents, contracts, bank accounts, financial accounts, safe deposit boxes, investment accounts, unpaid wages or other income sources, mortgages, insurance policies, retirement accounts, social security or other government benefits, pensions, real estate, businesses, prior tax returns, digital assets (email, social media accounts), etc. of the decedent. It may take some investigation into the files of decedent or interviewing the family members to uncover all potential assets and liabilities, and don’t assume decedent told you everything there was to know. A separate bank account will likely need to be set up for the estate or trust, and never comingle your personal finances with the estate/trust finances. You will need to obtain several certified copies of the death certificate in order to establish control over certain accounts held by third party custodians/banks. Some assets such as real estate may need to be appraised to determine the fair market value for purposes of estate taxes, reporting, or for distribution.
  3. Gather and Assemble a List of Decedent’s Creditors. This does not necessarily mean that you will immediately pay every bill as soon as it arrives. Rather, there could be other expenses that take priority such as funeral expenses or federal and state taxes. As a trustee or administrator of the estate, you could get into trouble by paying expenses that then leaves the estate unable to meet its tax or other priority obligations.   It is important to try and get a broad picture of the Decedent’s overall financial situation, including factoring in potential tax liabilities, in order to establish a game plan for administering the estate or trust and paying creditors. Of course, some debts such as mortgages or car payments need to be timely made to prevent the account from going to default, but have a concerted strategy for handling Decedent’s creditors. If it appears that the estate may not have sufficient assets to cover all liabilities, then professional assistance or assistance from the courts may be needed to determine how to prioritize payments.
  4. Notify Decedent’s Heirs and Beneficiaries. Some states have time requirements on when heirs and beneficiaries should be notified and whether they are entitled to receive a copy of Decedent’s will or trust. Their ability to bring challenges to the trust or estate may depend on when they were first notified and so seek help to determine the requirements in your situation and document your communications with heirs and beneficiaries.
  5. Manage the Assets of the Estate Prudently and Obtain the Consent of Heirs or Beneficiaries for any Major Actions. As the trustee or administrator, you are a fiduciary and must act in the best interests of the beneficiaries or heirs. You generally have a duty to manage and invest the assets as a reasonably prudent investor would and can be held personally responsible for failing to do so. Therefore, seek the advice of legal and/or financial counsel regarding any issues with managing or investing the assets of the estate, and if a decision needs to be made regarding an important asset (such as selling the asset, making significant improvements to real estate, etc.), consider obtaining the written consent of all beneficiaries before authorizing such action.
  6. Distribute the Assets to the Heirs/Beneficiaries. Once all the creditors and taxes have been paid and the estate is in a position to be distributed to the beneficiaries, an accounting may need to be performed and approved by the heirs/beneficiaries, and then the assets of the estate/trust may be distributed and estate or trust closed.

Again, keep in mind these are only general guidelines for administering trusts and estates and there may be specific state or federal requirements and deadlines that will apply to your situation. If you have a particularly large estate that may implicate state or federal estate taxes, there are likely additional requirements and deadlines and so it is recommended that you check with appropriate professionals as soon as possible for large estates.

For smaller estates or assets with lower value that are not held in trust, there may be other options for distributing those assets without the need for probate.   The rules and procedures can be rather complex depending on the state and the situation and so make sure you consult with appropriate professionals to ensure you are complying with your responsibilities as a fiduciary for the estate/trust.

About the author

Lee is an attorney at the California office of Kyler Kohler Ostermiller & Sorensen located in Irvine, California. Lee focuses his practice on real estate and business transactional/ litigation, debtor/creditor law, IRS negotiations, business planning, asset protection and estate planning. Lee’s practice includes advising clients on the formation of business entities, partnerships, and general tax planning relating to business entity formations. Lee also provides advice on structuring real estate investment deals and asset protection issues arising from investments in real estate. He also regularly advises and assists clients in IRS matters including audits, collections, installment agreements and offers in compromise.