Very few people know how to manage and take care of an estate when someone passes. There seems to be an endless stream of paperwork to complete and it becomes even more complicated when you have to work with both state and federal laws. While the probate and estate administration process can be overwhelming, it’s important to understand. One day, you may be in a position where you have to organize someone’s affairs and you want to ensure you take care of everything they worked hard for and left behind. A financial advisor may be able to help with the estate administration process. Consider using SmartAsset’s free advisor matching tool to find an advisor who serves your area.
What Is Estate Administration?
Estates include money, personal possessions, real estate and funded accounts. Estate administrators organize these affairs and act as representation for the estate when the owner passes away. This comes with a range of responsibilities, such as creating an inventory, managing assets and disbursing possessions.
Ultimately, the decedent’s will decides who will act in this capacity. However, if the decedent passed intestate, or without a will, it falls to the probate court to select the executor and estate administrator at that time.
Occasionally, an estate may require administration in more than one state. If the deceased owned real estate in a secondary state, ancillary proceedings may be necessary to probate the other property. These are lower-scale probate processes that follow state rules. If you are executor to an estate with multiple properties, consider consulting a second attorney. Attorneys local to the estate’s location will have a better understanding of the state laws.
Understanding the Estate Administration Process
Here is a general outline to help you prepare for the probate process and estate administration. Your experience may vary due to state laws or the advice of your attorney.
File Your Petition
Becoming an executor or personal representative is not an automatic process. You need to go to probate court and file a petition for the position. This must be done at the probate court located in the county where the deceased lived. If the decedent died intestate, or without a will, then eligible heirs need to apply for the role. After reviewing the petitions, the court appoints someone to serve as the appointed “administrator.” Typically, surviving spouses are the first choice.
The court also considers adult children, parents and other relations or close individuals. Once chosen, the selected individual receives legal documents, sometimes called “letters,” that certify their authority. Heirs also file the will and death certificate when they submit their petitions.
Notify All Parties
As an estate administrator, you need to notify any involved parties. The exact list may vary since every state has a unique set of laws regarding notification. However, it generally includes people who hold an interest in the deceased’s estate, such as heirs, beneficiaries and creditors.
When you notify these individuals, you give them a notice that alerts them to the amount of time they have to file a claim against the estate. It may involve publishing an obituary in a local newspaper or notifying the parties via mail.
Collect the Assets
As an estate administrator, you have to take stock of everything the deceased owned. Once you find everything, you’ll create an inventory of the assets and file it with the probate court.
It’s generally recommended that the estate administrator tackle this early on. When you do, you should try to consolidate estate funds as much as you can. Then, you can pay any outstanding bequests (gifts) or debts from a single checking account. This way, it’s easy to track all expenditures while maintaining transparency.
It’s also up to you to repay any remaining bills or liabilities. That includes things like utility bills, mortgage payments or storage fees. It’s important to keep clear records of any expenses you cover out of your own pocket, though. You may be able to reimburse yourself using estate assets, but this isn’t guaranteed.
Some liabilities qualify as final bills, meaning you can only pay them after the probate process ends. Monitor the order you need to make repayments, including any debts to creditors.
File Tax Returns
Some estates are large enough that they need to pay a federal estate tax. Any estate with combined previous taxable gifts and gross assets exceeding $11,700,000 in 2021 or $12,060,000 in 2022 must pay it. Certain states also enforce estate taxes. If you are the administrator of a decently large estate, you need to pay these taxes by the required deadline, typically nine months after the date of death. If you fail to pay, the estate may face severe penalties and interest. If you don’t have sufficient information to complete this task, you can file for an extension.
You’re also in charge of the deceased’s final income tax return, which you’ll need to file by the appropriate tax date a year after their death. If the estate earns any income during the administration process, the estate will need its own tax identification number.
Typically, executors must wait for the claim period to end before paying out the estate’s assets. That way, creditors have sufficient time to make their claims and receive their repayments. This period can last up to year following the date of death.
After you work through the estate and process any taxes or debts, you can start distributing the majority of the assets. Most administrators retain some, though, as a reserve. That way, there are enough funds for any unanticipated claims and costs to close out the estate.
File the Final Account
Once the above steps are complete, the estate administrator must file a final account with the probate court. This account should be highly detailed and list every move the administrator made, including tax filings, tax payments, payments to creditors and distribution of assets or property. The court then reviews this account. After approving it, you can distribute the closing reserve’s remaining funds and tie up any loose ends.
Acting as an estate administrator is no easy feat. There is a wide variety of tasks you are responsible for and the process can be lengthy. But you can streamline the process if you plan carefully. Make sure to secure physical or tangible property from the get-go. You’ll also want to secure property, file the will for probate and alert Social Security of the death. Check-in with local laws to make sure you act at the right time. Taking these steps may require energy, but they’ll reduce your long-term stress and potential costs.
Tips for Estate Planning
Estate planning isn’t intuitive. Consider speaking with a financial advisor before tackling the responsibility. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
No one claims estate planning is simple. But it becomes even more difficult when you have a larger estate. So, anyone with a significant amount of wealth may need to take extra care, like reading up on crucial estate planning tools for wealthy investors.
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