Once the legal paperwork is complete and a personal representative has been assigned, the estate normally moves into the administration phase. Usually this is done without court supervision, but the court can supervise administration of the estate if necessary. The following are the normal, basic steps in estate administration:
- Inventory of assets. The first step in administration of an estate is to identify and, if necessary, collect and preserve all the assets of the deceased. This includes cash and personal property, bank accounts, stocks, and any relevant life insurance policies. The personal representative has a lot of discretion regarding how to collect and preserve the assets of the estate, but we recommend that, at a minimum, all liquid assets be collected into a single account, which has the estate’s name on it. Real estate should be identified, but it is not usually necessary or advisable to change title on the real estate until it is sold. Then the money should be put in the estate’s bank account. Personal property is usually stored at the home until it is ready for disposition. Once the personal representative has a good idea of how much the estate is worth, he or she can move on to the remaining items of administration. Preserving the property also means making mortgage payments on a home, to prevent foreclosure. These payments are recovered in the final accounting.
- Deal with creditors. Creditors of the deceased must be paid before heirs or beneficiaries. The most common debts are medical debts. Many decedents also have some sort of credit card debt. Once a personal representative is appointed, he or she may publish notice to creditors in a newspaper. This is optional, and whether or not it is a good idea will depend on the individual circumstances. Creditors have 3 months from the time notice is published to send their claims to the personal representative. If they do not present those claims within 3 months, they are forever barred. If notice is not published, creditor claims must be presented within 1 year of the date of death, or they are forever barred. Publishing notice has the disadvantage of perhaps notifying creditors who would not otherwise make a claim, but it has the advantage of allowing the personal representative to know all the claims against the estate early on, reducing uncertainty and speeding the process of administration up. Once all claims have been made, the personal representative can determine which are valid and which are not, and can negotiate payments with the creditors. Credit card companies, for example, are often willing to reduce their claim in exchange for prompt payment.
- Liquidation of assets. Once all creditor claims have been identified, the estate can begin to sell assets to either pay off the claims, or to begin distribution, depending on how much the creditors are owed. Usually the largest and most important asset in an estate is the home, and normally the personal representative will simply hire a real estate agent to take care of selling the house. Occasionally a family member will want to purchase the home, and a real estate agent is not necessary, though often a title company will be used to handle the transaction.
- Accounting and Distribution. At the final stage, the personal representative pays all remaining expenses of the estate, including reimbursements for any out of pocket expenses he or she made on behalf of the estate. These include administrative fees like court costs and attorney or accounting fees, tax issues that needed to be resolved, and repairs or maintenance on estate property. Funeral costs may also be reimbursed from the estate. Once all expenses have been accounted for, the personal representative distributes the estate to the heirs or beneficiaries. Usually this just means writing a check to everyone for their share, but occasionally property is distributed “in-kind.” This means that heirs will receive an actual piece of property from the estate, rather than cash. This could be a vehicle, or an interest in real property. Most people prefer the ease of selling everything and then handing out checks, but if everyone is in agreement, it is certainly possible to, for example, simply re-title real property in the names of all the heirs. Small items of personal property (holding mostly sentimental value, like furnishings, dishes, etc.) are usually distributed among family members early in the process, according to whatever system they devise. A “draft” format is common. Many families will also have an estate sale to liquidate personal property and clear out the house.
- Estate Closing. As a final step, the personal representative may ask the court to approve the final accounting and close the estate. This protects the personal representative from any future claims against him or her. However, this is optional, and especially in simple, uncontested matters, this is seldom done. In most cases, the children have an estate sale, sell the house, pay of the mortgage, get everyone a check for their share, and are done.
The process of administration is the same using a trust, except that no court involvement is necessary, and, of course, any specific instructions in the trust need to be followed. Although set out here as separate steps, in order, the reality is that there can be a fair amount of overlap in all these tasks. Distributing personal property, for example, often happens informally and very early in the process, sometimes even before a personal representative is appointed. Creditor claims can begin to come before the personal representative has finished inventorying assets, and often times those assets will need to be sold before the creditors can be paid. Also note that secured creditors (those with liens on the home or cars, for example) do not need to present their claims to the personal representative. Government creditors (like Medicare) also have special rules that apply to them.