Unfortunately for beneficiaries, handing out inheritances is the very last thing the executor or personal representative of a probate estate will do. The same goes for the successor trustee of a trust. These individuals must take several steps before an estate or trust can be closed, from valuing assets to paying any taxes due.
Inventorying the Decedent's Documents and Property
All the deceased's estate planning documents and other important papers must be located before a personal representative or an executor can be appointed by the probate court, or before a successor trustee can take over the administration of a trust.
The decedent's estate-planning documents can include a last will and testament, funeral, cremation, burial or memorial instructions, or a revocable living trust.
Important papers include bank and brokerage statements, stock and bond certificates, life insurance policies, car and boat titles, and deeds. Other information requested may be related to the deceased's debts, including utility bills, credit cards, mortgages, personal loans, medical bills, and funeral expenses.
The probate court will then officially appoint the executor if probate is necessary and when the will is submitted to the court. A petition must also be filed to open probate if the decedent didn't leave a will. The successor trustee can now accept the appointment without probate court involvement if the deceased left a living trust.
A delay of up to two weeks is common from the date of death until probate is officially opened in some states. For example, a New Jersey court cannot accept a will for probate until 10 days have passed since the date of death. Anyone who wants to object to the will can do so during this time.
Valuing the Decedent's Assets
Next, the date-of-death values of the deceased's assets must be determined. Most state probate courts require the filing of a comprehensive list of all property owned by the decedent along with corresponding appraised values.
This is additionally important information for the beneficiaries. Any capital gains tax will be calculated using these date-of-death value should a beneficiary decide to sell an inheritance.
This is referred to as a step-up in basis, and it's a good thing. Otherwise, any capital gains tax would be based on the difference between the sales price and whatever the decedent paid to purchase the asset, which could be a great deal more.
The total value of the deceased's assets also determines whether it will be liable for state estate taxes and/or federal estate taxes after subtracting the decedent's outstanding debts, certain gifts such as those made to spouses or charities, and costs of administering the estate.
Paying the Decedent's Final Bills
The deceased's final bills, creditors, and ongoing administration expenses must be paid before the probate estate or trust can close and transfer the remaining assets to beneficiaries. This occurs after the value of the deceased person's assets has been established and, in the case of a probate estate, after the list has been supplied to the court.
Estate executors are required to notify all potential creditors of the deceased, both those they know about and those they might not be aware of. This is typically achieved with a newspaper notice, alerting creditors to the death and instructing them how to make claims to the estate for the money they're owed.
This published notice is typically in addition to written notice made to known creditors.
Creditors then have a prescribed period of time to make claims, depending on state law, but it can run simultaneously with the inventory period in some states.
The executor has the right to decide whether claims are valid and whether they should or should not be paid. Denying claims can result in numerous court hearings where a judge will ultimately decide, and all of this can eat up a lot of time. For example, in Washington, creditors have 30 days to file a suit against a rejected claim and that could slow down the process of closing the estate.
The decedent's final bills will probably include cell phone bills, credit card bills, and medical bills, as well as the ongoing expenses of administering the estate or trust, such as storage fees, utilities, and attorney's fees. Any mortgages and other secured debts must also be resolved.
Tax Returns and Applicable Taxes
The executor of the probate estate or the successor trustee must also file all necessary federal and state estate tax returns, inheritance tax returns, the decedent's final income tax returns, and estate or trust income tax returns.
Of course, any taxes that are due must be paid in a timely manner to avoid interest and penalties. When estates owe estate taxes, they typically can't close until receiving written approval from the IRS or the state taxing authority.
Distribute What's Left to Beneficiaries
Finally, the executor or successor trustee will distribute inheritances to the beneficiaries. This is the very last step because executors and trustees can potentially be held personally liable for the deceased's unpaid bills, administrative expenses, and all unpaid taxes if they fail to take care of all the prior steps first.
When Can You Expect Your Inheritance?
How long the settlement process takes depends on many factors, including the types of assets the decedent owned, the value of those assets, whether the estate is taxable at the state and/or federal level, how many beneficiaries are involved, and the skills and diligence of the executor or successor trustee.
A simple estate or trust can often be settled within a few months, while a complicated estate or trust can take one or more years to close.
Disclaimer: This article is not intended to be construed as legal advice. Prior to making any significant decisions relative to its content, you should consider seeking the advice of a licensed attorney that specializes in Estate Law for your particular state.