"Estate Administration"


Topics Covered Under Estate Administration

A) Legal Steps to Follow Upon Death of Loved One
B) Matters to Address as Successor Trustee
C) Duties of an Executor or Personal Representative
D) Payment of Decedent’s Liabilities
E) Trust Administration
F) Decedent’s Income and Estate Taxes

During our lifetime most of us at least once are delegated the responsibility as executor or trustee of a loved one- usually a parent, spouse or close friend. The grief of loss as well as the practical tasks of a church memorial service, funeral and burial arrangements as well as coordinating with family and friends are all necessary and important. After these personal responsibilities have been fulfilled, financial obligations or commitments must also be given priority and attention.

A) Legal Steps to Follow Upon Death of Loved One

After taking care of the personal responsibilities and sufficient time for personal grieving, the following actions should be taken:

1) Locate the decedent’s Last Will and/or Trust.
2) Contact the attorney who prepared Last Will and/or Trust and set an appointment.
3) Obtain list of assets and liabilities (Personal Balance Sheet) and Insurance policies, if any.
4) If the decedent was a Principal or shareholder in a business, obtain the business succession planning documents and determine what obligations and responsibilities the successor trustee has to continue the operations or degree of participation therein.
5) With your attorney’s presence, determine who, in fact, is the decedent’s personal representative and trustees are. Have the attorney file a petition with the probate court, if necessary, requesting it appoint the person selected to act as personal representative of the decedent.

B) Matters to Address as Successor Trustee

Assuming the decedent had an enforceable Revocable Living Trust, and even though the trust if properly funded will avoid probate, there are still matters that have to be accomplished including but not limited to:


1) Income and Estate tax planning issues should be discussed with CPA or financial advisor and filing appropriate federal and state tax returns needs to be handled.
2) Valuation of assets reverting to surviving spouse or other heirs.
3) Filing claim application with appropriate life insurance companies.
4) Retirement Plan options and elections need to be evaluated and requested.
5) Debts and expenses need to be evaluated for payment (or payoff) options.
6) Contacting Social Security Administration and Decedent’s Retirement Plan Administrator for any change in monthly benefit resulting from decedent’s death.
7) Finally, net assets and income should be distributed in accordance with trust instructions after the above items have been addressed and amounts allocated or set aside in reserve.

C) Duties of an Executor or Personal Representative

An Executor, Executrix (female executor), personal representative or Administrator are terms that can be used interchangeably for all but the most technical purposes. All these terms refer to the person a court appoints to administer an estate. An executor has the responsibility of gathering the decedent’s assets and reporting to the court by preparing and submitting an inventory of such. The executor should take possession of the assets for a set period in order for creditors’ claims to be filed and satisfied according to state law. After the decedent’s debts, claims and taxes from the probate assets are satisfied, the executor should distribute the remaining property (or assets) to the decedent’s heirs as provided in the Last Will. The process is complete after the executor prepares a final accounting and submits it to the probate court for approval. The executor should make sure the following items are not overlooked in this process:

1) Income tax refunds (medical deductions including nursing home cost in final year should not be overlooked).
2) Final pension, insurance payouts.
3) Overpayments or prepaid deposits
4) Collectables (coins, stamps, art, etc.) and undervalued antiques.
5) Jewelry, precious gems or metals.
6) Stock certificates (old or new)
7) Travel or Recreation time-share contracts
8) Life or disability insurance benefits incidental to credit card or savings accounts.
9) Accounts or Notes Receivable for monies contractually owed to decedent.
10) Bank or Credit Union account search by social security number.
11) Review of check book register, cancelled checks and bank statements to determine any outstanding debts or receivables from even loved ones on oral agreements for repayment.
12) Reimbursement rights for medical insurance policies or long-term care contracts.
13) Business buy/sell agreements.
14) Appraisal of household furnishings with photographs on a room-by-room basis.
15) Anything else not mentioned above.

D) Payment of Decedent’s Liabilities

The personal representative must wait until after the publication of notice to creditors or the expiration of a “non-claim” period (which is generally 3 to 9 months, depending on state law) to distribute the estate’s assets. Otherwise, the decedent’s creditors may commence a cause of action against the personal representative for failure to adequately provide for them.

The Fiduciary handling the estate must make a clear determination of the value of the estate before paying any of the estate’s debts, including any estate taxes. Remaining assets then can be used to pay any claims.

E) Trust Administration

When the first trust maker dies, there is very little that the surviving spouse must do if all of the decedent’s assets have been transferred into the trust. Although probate is eliminated, the deceased spouse’s pour-over Last Will should be filed with the probate court. The successor trustee should send “Affidavits of successor trustee” to all financial institutions affected so that these trustees have signatures on file with them. The Trustee should also prudently notify, in writing, all the beneficiaries named in the trust, including contingent beneficiaries, of the trust maker’s death and the existence of the trust. A full accounting of all trust activity by the trustee to the named beneficiaries at frequent intervals (at least annually) will help avoid any misunderstandings among them.

As a trustee holding “fiduciary duty”, you are held to the highest standard of care. Personal liability may result if you are negligent in the handling of trust assets and liabilities. Accurate records regarding trust property including additions to trust principal and income must be maintained. Therefore, it is good sense to hold funds or assets back for a year or more in order to allow time for adjustments to income and estate tax returns filed or for any final late arriving medical bills or settlements.






F) Decedent’s Income and Estate Taxes

A final income tax return must be filed with the federal and state tax authorities after the death of an individual in order to pay any remaining taxes or claim a refund for this final reporting period. If the decedent has a surviving spouse, the final return may be part of a joint return filing married. This return will claim the decedent’s exemption and file under the married status even though the surviving spouse will be obviously required to sign the return for herself and on behalf of the decedent.

Income received after the decedent’s death is reported on one of the following tax returns: the decedent’s personal income tax return (Form 1040), the estate’s income tax return (Form 706 which must be filed and tax paid nine (9) months after the decedent’s death), the trust’s income tax return (Form 1041) or the beneficiaries’ returns who received income. A Federal Estate tax return is required if a decedent’s gross estate is valued at or more than the applicable exclusion amount in the year of death.

Year of Death

Gross Estate Exemption Amount

Highest Tax Rate %
2002-2003 $1,000,000 50-49%
2004-2005 $1,500,000 48-47%
2006-2008 $2,000,000 46-45%
2009 $3,500,000 45%
2010 N/A Repealed

Due to the sunset provisions of the Economic Growth and Tax Relief Reconciliation Acot of 2001, the estate tax will be repealed in the year 2010 and then reinstated in the year 2011 based on the year 2001 tax laws, unless further tax legislation is enacted. However, the gift tax will still exist.

If a living trust can be terminated quickly after the death of the trust maker, and preferably within the same tax year as the decedent’s death, the trustee will pass the income to be reported directly to the beneficiaries who receive the income. If it appears that the trust cannot be terminated quickly, the trustee should consider creating an administrative trust with its own taxpayer identification number to capture and file for impending reportable trust income. An executor of an estate may elect a fiscal tax year as opposed to a normal calendar year for reporting.

Assets are valued for estate tax purposes at their fair market values (not necessarily liquidation price) on the date of the decedent’s death. However, if certain conditions are met, the assets can be valued on the alternate valuation date (6 months after the date of death). If the estate sells some assets within that 6-month period, the alternate valuation date is the date of sale for those assets sold. The trustee cannot value some assets on the date of death and other assets on the alternate valuation date. All asset valuations must use one or the other dates.