THE LAWYERS ROLE IN ESATE ADMINISTRATION
None of us likes to think about death. We’re not wild about paperwork and procedures, either. Administering the estate of a deceased person (decedent) unfortunately involves death and taxes and careful accounting and attention to detail. Many people lighten the load on themselves by using a lawyer’s services at this difficult time. This also assures that the job is done right.
Who administers an estate In your will you name an executor to handle your estate. If you die without a will – as all too many of us do – the court will appoint a personal representative to carry out this function.
Who should this person be? It’s important to be sure that he or she is capable of doing the job. The executor has to be detail-oriented, able to persevere in dealing with bills and insurance reimbursements (especially the hospital), Medicare, ambulance and doctor chares incurred in a last illness), and comfortable in handling a lot of paperwork.
Also, the executor may have to cope with relatives who may be wondering why it’s taking so long to receive their inheritance or why their bequests are smaller than they expected. This can happen if, for example, the decedent’s money was aggressively invested in the stock market, and those stocks nose-dived after he or she wrote the will.
The executor or personal representative is also responsible for various tax returns and may have to manage the decedent’s property throughout the probate process, which can last more than a year. This can involve managing an investment portfolio and making important investment decisions.
A professional executor. Many people name a professional executor, rather than naming their spouse or another relative. This assures that the process will go smoothly, saves family members work and anxiety, and has the additional benefits of assuring that the executor has no possible conflict of interest, since the executor will not stand to gain from the will. In general, the larger the estate, and the more the potential for conflicts, the more you should consider naming a professional as executor.
An additional benefit is that having a professional executor lessens the possibility of personal liability for a family member. If you choose a family member and he or she is incapacitated by grief, illness, or disability, the person could be liable for unpaid estate taxes and fines for late filings.
Delegating some tasks to the lawyer. Another alternative is to name a family member as executor but specify that you expect your executor to appoint a competent attorney to assist in settling your estate. For example, you could direct that your Executor use a lawyer's services for court appearances, filings, and other technical matters requiring legal expertise.
A quick look at the process will show that there are a number of occasions when a lawyer's services may be helpful and even necessary.
The Process, Step by Step Opening the Estate. If the decedent left a will, the first job is to submit the original copy to the probate court having jurisdiction- the court in the county where the decedent lived. In some states, it may be necessary to prove that the will is valid in a brief hearing. This is usually routine but if there is a will contest - someone disputes that the will is valid; is the decedent's last will, etc.- or if there are complications, a lawyer's help will definitely be required.
To "open the estate," the executor completes certain forms that notify the court and interested parties of the death. At this stage, depending on state law, the executor may have to choose among several types of probate - supervised, unsupervised, small estate. This decision is important, and it may be a good idea to get your lawyer's analyses of the pros and cons of each.
Collecting the Estate's Assets. The next step is to inventory the assets of the estate. Once again, a lawyer might well be helpful in differentiating the property that passes through probate from the property that is out of the probate process. For example, if you own property in joint tenancy with right of survivorship, it passes immediately to the surviving owner upon your death. (Many spouses own their home in such a joint tenancy.) Other property that does not pass through probate includes life insurance payable to a named beneficiary, property held in a trust, and retirement plans payable to named beneficiaries.
As for assets that do pass through probate (assuming they are held in sole ownership), the value of stocks and bonds depends on their value on the date of death. The same is true of bank balances. The value of other forms of property such as real estate, may have to be set by professional appraisers.
Managing the Estate's Assets. If the decedent owned a business, or income producing real estate, or an active portfolio of stocks and bonds, the executor might well have to take on responsibility for managing this property. That's why it’s a good idea to specify in a will that the executor has authority to retain certain kinds of property in the estate, continue running the business, buy or sell real estate, borrow money, and take advantage of tax savings. All these decisions may have significant legal dimensions, and the executor may benefit from legal help.
Handling Taxes. The executor must notify the IRS of his/her appointment by sending in a form and applying for a separate taxpayer ID number for the estate. The executor must file a form to pay the federal estate tax for estates totaling $675,000 or more. There may also be state estate taxes to pay, sometimes even on smaller estates.
The executor must also file some income tax returns. One return covers income the deceased person earned in the tax period before dying. Another covers income above a very modest minimum earned by the estate while the estate is being administered, such as through dividends, income from the sale of property, etc.
Taxes may have to be paid before money and other assets can be distributed tot he beneficiaries. The executor has many decisions to make regarding how and when to pay taxes, a number of which could significantly affect the amount of taxes that are due. The help of a professional could result in savings of thousands of dollars.
Closing the Estate. This process could well vary state by state, but generally it involves filing various forms with the court. These require the executor to show that all interested parties including creditors received timely notice of the death, that the time period in which claims can be filed against the estate (specified by state law) was observed, and that all valid claims (including taxes) were paid. A final accounting - totaling up all the estate's assets, minus expenses - will also be required. This will also indicate the amounts to be distributed to beneficiaries.
Distributing the Assets. Again state laws may vary on details, but the general pattern is that all the assets are not paid out to beneficiaries until the court has approved the executor's filings regarding assets, claims, taxes, etc. In many states, a portion of the asses can be paid out before the final stages. This helps minimize financial hardship for the decedent's family.
Legal issues that can arise in distributing assets can involve the spouse's right of election. State law generally gives surviving spouses the right to a certain percentage of the estate, despite what the will says. So a disinherited spouse may have the right to claim a percentage of assets of the estate. Also, the family homestead is usually shielded from creditors, and that could be an issue in certain estates.
OTHER POSSIBLE PITFALLS
Administering estates can be routine, but issues that can arise - besides those specified in this article - include
When these or other difficulties surface, a lawyer's help can be invaluable.