Hi, I'm Carole Bass, an ACTEC Fellow from New York City, and I'm joined today by Ray Prather an ACTEC Fellow from Chicago, Illinois. We're going to be talking about estate administration. So, Ray, to kick us off, what is estate administration?
Estate administration is the process of winding up a person's financial dealings after they die and then distributing that person's property to the people that inherit it. Obviously, that's a lot to cover for just one video, so I would encourage everyone to take a look at ACTEC's video library and the topics we touch on the day for more information. So, Carole, do you want to start us off? A close friend or relative has died. After the funeral and grieving process; what's the first step someone should take in estate administration?
Sure, so that the first steps to take in an estate administration really involves collecting information, particularly asset information, and finding out what the decedent owned and how it was titled; finding out if there was a will or not; obtaining death certificates, typically from the funeral director; notifying Social Security if the decedent was receiving benefits; and getting in touch with an attorney who could help walk you through the process. So, Ray, what if someone dies without a will?
Well, a will is just a document that says you should receive your property upon your death and intestacy laws are basically a will that states make for you. So, they have this back up for you if there's no will in place. Usually, they'll start with your surviving spouse and children and then move on to more distant relatives afterward. Now, an important point about wills is that not every piece of property somebody owns passes through it. Do you want to talk about those sorts of property transfers and how they affect the state administration?
Sure, so there are a number of types of property that would pass outside of the will and the probate process. That would be property that's titled as joint tenants with right of survivorship, life insurance policies and retirement plans, and other assets that have a beneficiary designation and pass according to forms you filed with a plan administrator, a life insurance company or bank, and also property that’s held in, for instance, a revocable trust for a living trust. Those would all pass outside of probate. But Ray, how do you probate assets get administered?
Sure, so everything was passing through the will uses the probate process, and basically, the estate appointing an executor or administrator the authority to manage and distribute the assets. The state oversees the process, so it ensures that everything's been done in a timely manner and the property is going to everybody and nothing is being misused. If you want to dive into some of the specific steps of probate, Carole, I'm happy to hand it over to you.
Sure, so the probate process can really vary greatly from state to state, so it’s important to get advice from an attorney who's admitted in the state where the decedent died, but generally, it will involve the petition to the court asking that there will be admitted and that somebody be appointed as the executor or personal representative of the estate. It will involve notices to certain people; it will require the family tree to be fleshed out; it might include creditors' notices and then accounting and inventories that are filed with the court. Ray, how are the decedent's depts handled?
As you mentioned, creditors often receive a notice, and it's required by a lot of the states’ probate codes. And once they're notified, they provide claims, and the executor then knows that there are debts that they should pay. If the estate is insolvent and doesn't have enough money to pay all the debts, the probate code provides a priority list of who should be paid first and how to divide up the estate in that respect. There is obviously a lot going on here. Do you have an idea of how long this typically takes?
Yes, how long the process takes is really going to vary by the complexity of the estate. A simple estate might get tied up fairly quickly while a larger estate, especially one that has an estate tax filing requirement, will take longer. The probate process itself will depend on the backlog of the court. We're recording this during the pandemic and the courts are very backed up, probates taking a lot longer than it might otherwise take. Ray, I mentioned the estate tax proceeding, but how are taxes involved in estate administration?
If you go back to the beginning, estate administration is winding up all of the decedent's financial dealings, and part of that includes filing their final income tax return. If the estate earns money while it's being administered, it's also going to have to pay an income tax, and that's done through the estate income tax return, fiducairy income tax return. Then there are federal and state estate taxes once the estate reaches a certain threshold, and then some states even have inheritance tax which is a tax based on who the money is going to. So, those are pretty much all of the taxes that people should be aware of. Do you have any final thoughts before we end?
Just one final thought before we end, which is: that if you don't have a plan, you really do, it's the one state created it for you, and it might not match what your wishes are. Many people think if they don't have a will in place that the property will all pass to their spouse, but that's not true in every state. In New York, where I practice, the spouse would only get about half if there's no will. It's also important, especially if you're an unmarried partner, even if your registered domestic partners, to have a will in place because you might not be recognized in the estate administration process as a beneficiary. Ray, do you have any final thoughts?
The only final thought I have is if you have an estate plan, review it at least every five years. People come and go in our lives, things change, and it's important to make sure that it's up to date. If anyone has any further questions or wants more information, they should be sure to check out the ACTEC library.