Estate Administration

Whenever a person dies, his or her estate needs to be collected, managed, and distributed. Estate administration involves gathering the assets of the estate, paying the decedent's debts, and distributing the assets that remain in the estate.

In recent years, state legislatures have attempted to reduce the complexity of estate administration. Currently, about 20 states have adopted some version of the Uniform Probate Code (UPC), which was designed to simplify the estate administration process and provide similarity among probate laws from state to state.

Which State Law Applies?

In some cases, an estate may need to be administered in more than one state. Generally, the state in which the decedent resided at the time of death will be the state where the decedent's estate is probated.  However, state law governs the transfer of real estate, so if the decedent owned real estate in another state, it may be necessary to do an ancillary proceeding to probate that one piece of property in the state where it is located.  An ancillary proceeding is a scaled-down probate proceeding, which governs only the assets located in that state.  In some instances, it may be necessary to consult two attorneys, one in the state where the decedent lived and another attorney in the state where the decedent owned real estate.

Probate: Formal or Informal

In many states, a probate proceeding can be either formal or informal.  An informal probate proceeding usually involves filing some basic paperwork, having the court appoint someone to manage the estate, paying the debts, distributing the assets, and having the court approve the distribution.  The court's role may never require a hearing, but only a review of the papers filed.

In other instances, such as when a will is disputed, a formal probate proceeding may be required.  A formal proceeding involves more court oversight and usually requires one or more court hearings.  In some states, a probate proceeding can be formal in parts and informal in others.  For example, the matter may start out formally, with a court hearing to appoint the personal representative, but end informally, with a paper filed with the court detailing how the assets are to be distributed.

Managing the Estate: Personal Representatives

The first task in a probate proceeding is appointing a responsible party to manage the estate.  This person is usually called the personal representative.  In some states this position is known as the "executor." The personal representative may be an individual or a company, such as a bank.  The personal representative may have been nominated by the decedent in the will.  If there was no will, the court will usually appoint the surviving spouse or another family member.  There may be more than one personal representative named.

Inventorying the Estate

After being appointed, the personal representative is expected to document all of the decedent's assets.  This documentation is often referred to as the inventory.  The personal representative must also inform the decedent's creditors that the decedent has died.  If the decedent's probate assets are sufficient to pay the creditors, the personal representative will pay them from the estate.  If the probate assets are insufficient, the personal representative may need to obtain court approval to determine which creditors should be paid. 

Distributing the Estate

If there are any assets left after the creditors have been paid, those assets are distributed according to the will.  If there is no will, the decedent is said to have died intestate.  State laws vary as to how to distribute the assets of an intestate decedent. The personal representative will also file any necessary tax returns.  If the estate is owed any money, the personal representative may need to bring a lawsuit in order to collect it.  If the will is contested, or if there is any other dispute over how to distribute the estate assets, the personal representative may have to "defend" the will in a probate proceeding.

Avoiding Probate Through Small Estate Administration

If the decedent owned few assets, it may be possible to avoid the probate process. In many states, a "small estate administration" is available. Usually, in order to qualify for a small estate administration, the decedent's assets must not include real estate and must be worth less than a threshold amount determined by the state. If a small estate administration is applicable, the parties who are entitled to receive the decedent's assets may collect those assets by way of an "affidavit," a sworn statement that is filed with the court. Even in a small estate proceeding, though, the decedent's creditors may need to be paid from the assets before any estate assets are distributed.

Choosing the Executor

OK. Let's assume you've followed this book's advice and, working with your lawyer, crafted a well-thought-out estate plan, one that protects your assets from unintended taxes, provides for your loved ones, business interests, and favored causes, and leaves clear final instructions for your funeral and other final arrangements. Secure in the knowledge that you've tied up all the loose ends and done everything you could to ease the burden on your family, you close your eyes for the last time.

Now what?

You need to pick the person (or persons or institution) to be in charge of your assets after you're gone: the executor of your will and the trustee of any trusts you set up.

What is an executor?

The executor (called a personal representative in some states) is the person named in a will to be in charge of winding up the person's financial affairs after death. Basically, that means taking care of property, paying bills and taxes, and seeing to it that assets are transferred to their new rightful owners. If probate court proceedings are required, as they often are, the executor must handle them or hire a lawyer to do it. Executors can request payment from the estate. The exact amount is regulated by state law and is affected by factors such as the value of the deceased person's property and what the probate court decides is reasonable under the circumstances. Commonly, however, close relatives and close friends (especially those who are inheriting a substantial amount anyway) don't charge the estate for their services.

How do I choose an executor?

Most executors don't need special financial or legal knowledge; most people name their spouse or an adult child. Common sense, conscientiousness, and honesty are the main requirements. An executor who needs help can hire lawyers, accountants, or other experts, and pay them from the assets of the estate.

The person you choose should be honest, organized, and good at communicating with people. If possible, name someone who lives nearby and who is familiar with your financial matters; that will make it easier to do chores like collecting mail and finding important records and papers.

Many people select someone who will inherit a substantial amount of their property. This makes sense because such a person is likely to do a conscientious job of managing your affairs after your death. He or she may also know where your records are kept and understand why you want your property left as you have directed.

Legally, you can name anyone you want to be your executor. In most states, the only people who can't serve as executors are children under 18 or convicted felons. Some states do, however, impose restrictions on out-of-state executors. For example, a few require that an out-of-state executor be a relative or a primary beneficiary under your will. And some states require that a nonresident executor obtain a bond (an insurance policy that protects your beneficiaries in the event of the executor's wrongful use of your estate's property) or name an in-state resident to act as the estate's representative.

No matter who you pick, make sure the person is willing to do the job. Discuss it together before you finalize your will. When it comes time, however, an executor can accept or decline the responsibility. And someone who agrees to serve can resign at any time. If the will named an alternate executor, that person will take over. If not, the court will appoint someone to step in.

Must an executor hire a lawyer?

Not always. Doing a good job requires persistence, and attention to tedious detail, but not necessarily a law degree. If assets must go through probate court, the process is mainly paperwork. In the vast majority of cases, there are no disputes that require a decision by a judge, and the executor may never see the inside of a courtroom. It may even be possible to do everything by mail.

An executor can probably handle the paperwork without a lawyer if he or she is the main beneficiary, the deceased person's property consists of common kinds of assets (house, bank accounts, insurance), the will seems straightforward, and good self-help materials are at hand. (One good book is The Executor's Guide, by attorney Mary Randolph (Nolo), which guides executors through the process of winding up a loved one's estate, step by step.)
If, however, the estate has many types of property, significant tax liability, or potential disputes among inheritors, an executor may want some help.

There are two ways for an executor to get help from a lawyer:

• Hire a lawyer to act as a "coach," answering legal questions as they come up. The lawyer might also do some research, look over documents before the executor files them, or prepare an estate tax return.

• Turn the probate over to the lawyer. If the executor just doesn't want to deal with the probate process, a lawyer can do everything. The lawyer will be paid out of the estate. In most states, lawyers charge by the hour ($150-$200 is common) or charge a lump sum. But in a few places, including Arkansas, California, Delaware, Hawaii, Iowa, Missouri, Montana, and Wyoming, state law authorizes the lawyer to take a certain percentage of the gross value of the deceased person's estate unless the executor makes a written agreement calling for less. An executor can probably find a competent lawyer who will agree to a lower fee.

Can an executor get help from someone besides a lawyer?

Yes. Here are some other sources of information and assistance.

• The court. Probate court clerks commonly answer basic questions about court procedure, but they staunchly avoid saying anything that could possibly be construed as "legal advice." Some courts, however, have lawyers on staff who look over probate documents, point out errors in the papers, and explain how to fix them.

• Other professionals. For certain tasks, an executor may be better off hiring an accountant or appraiser than a lawyer. For example, a CPA may be a big help on estate tax matters.

• Paralegals. Many lawyers delegate probate paperwork to paralegals. Now, in some areas of the country, experienced paralegals have set up shop to help people directly with probate paperwork. These paralegals don't offer legal advice; they just prepare documents as the executor instructs them, and file them with the court. To find a probate paralegal, an executor can look online or in the Yellow Pages under "Legal Document Preparation" or "Attorney Services." The executor should hire someone only if that person has substantial experience in this field and provides good references.

• Books. The Executor's Guide, by attorney Mary Randolph guides executors through the process of winding up a loved one's estate, step by step.

Estate Tax Issues

Estate taxes are imposed by the federal government on the transfer of a deceased person's property to heirs and others identified in estate planning documents (such as wills). This section contains information and resources on estate taxes and other taxation issues related to estate planning and the administration of an estate. Choose a link to get started.