Why Is the Administration Process Necessary?
After the passing of an individual (generally referred to as the “decedent”), an administrative process must be followed and completed. When someone passes, their name and Social Security number need to be retired. Not doing this is the #1 way that identity theft occurs. Seeing a professional who understands the ins and outs of the tools needed to transfer title successfully to a decedent’s beneficiaries ensures a smooth transition that minimizes potential taxes and costs. Some of these tools are small estate affidavits, beneficiary claims, Heggstad petitions, rights of survivorship, and probate.
The main reason estates need to be administered is to facilitate an orderly transfer of assets upon death. This holds true whether it is a multi-million-dollar estate or only worth a few thousand dollars. The administration of any estate also applies whether there is a will, a trust, or no estate planning documents.
During the administration period, someone must be officially and legally appointed to handle the administration’s details. That person is known as a personal representative and essentially “stands in the shoes” of the deceased. A personal representative is necessary because someone must be authorized to sign the decedent’s name and transfer assets. If the decedent dies with a will, or “testate,” an executor is appointed as the personal representative. If the decedent dies without a will, or “intestate,” an administrator is appointed as the personal representative.
Once the personal representative of the decedent is appointed, they are responsible for locating and gathering assets, performing an inventory of all assets, and obtaining an appraisal of those assets.
Understanding the Terminology
When an individual is faced with settling a loved one’s estate, it is important to understand the terms used. This glossary gives a brief explanation of these terms.
- Principal and income: Principal is the property of a decedent’s estate or trust, and the income refers to the returns from that property, including rent, dividends, interest, and other earnings. This may also include income gained from the appreciation of property.
- Executor/executrix: This is the person, trust company, or bank in charge of settling the estate of the decedent according to the terms of their will. If there is no will, this individual is sometimes called an administrator, and they must settle the estate according to the appropriate laws. The term “personal representative” is sometimes used to mean the same thing.
- Trustee: An individual, bank, or trust company charged with holding the legal title for property that benefits another and behaves according to the terms stated in the trust.
- Beneficiary: The individual who is intended to receive property, now or later, either directly or in trust; the person for whom a trust or will was made. A person may be a beneficiary and a trustee of the same lifetime trust they established (inter-vivos) or a trust someone else established for them upon their death (testamentary trust).
- Testator/testatrix: An individual who has made a will.
- Grantor/trustor/settlor: One who transfers property to a trustee to own or hold according to the terms of an agreement, or trust establishes their wishes. This should not be confused with using the term on income taxes, which refers to the individual taxed on income that a trust generates.
- Fiduciary: A bank, trust company, or individual who acts on behalf of another. Personal representatives such as executors and trustees are fiduciaries.
Wills and the Probate Process
A will must be read and understood so that certain directions are understood, including the following:
- Fiduciary powers
- Which assets should be used to pay expenses and taxes
- Whether certain distributions are mandated or left to the discretion of the trustee
- Whether the decedent’s assets are distributed outright or placed into new trusts
- Whether there are co-fiduciaries
- Who the beneficiaries are
For the will to be implemented, a court must first determine that it is valid. This is called “probate.” If an executor is not named in the will, the probate court may appoint one, or a family may petition to have a specific individual serve in this role. This can be difficult to navigate on one’s own, and many executors choose to hire a probate attorney for guidance.
The first of the responsibilities that an executor must abide by is to file with the probate court of jurisdiction in the county where the decedent passed away. Once the will is determined to be valid, and any challenges to the will are settled through litigation, the executor must administer the estate according to the provisions laid out in the will. They must notify the beneficiaries and creditors before distributing any assets. Throughout this entire process, it is crucial to keep detailed records and obtain receipts for all the estate expenses and funds.
If a creditor makes any claims against an estate, the executor must pay these debts out of the estate’s assets. The executor will need to take a full inventory of the assets an estate holds. If the decedent has assets that are not listed in the will, the executor must distribute them separately according to the state’s intestacy laws. Once the executor pays the accountants, attorneys, creditors, and any other costs incurred during the probate process from the estate’s assets, they distribute the remaining assets to the beneficiaries. These representatives are tasked with distributing the assets according to the testator’s wishes.
What If There Is No Will?
When individuals fail to write a will or establish trusts before they pass away, it is referred to as intestacy or dying intestate. The state dictates the laws that govern how an estate is distributed in this situation, and the probate court appoints an individual to serve as the estate administrator. They will often offer the decedent’s surviving spouse the opportunity to serve in this role or the next closest member of the family if the spouse does not wish to do so.
If none of these individuals is interested, the court will appoint an estate administrator. This person will handle the tasks of settling the decedent’s financial affairs, taking inventory of their assets, notifying and paying creditors, distributing assets to any potential heirs, and paying any fees and taxes associated with settling the estate. Once all debts and expenses have been paid, the remaining assets are distributed to the heirs according to state laws.
The Components of Settling an Estate?
The many facets of settling an estate involve certain details that must be handled individually. The following items must be settled according to state laws and the decedent’s wishes outlined in their will if they have written one. In many cases, an executor will find that an experienced estate and trust administration lawyer can help them navigate these tasks’ details and settle the estate more easily.