Probate involves assets, debts, and distribution. The administration of a probate estate involves gathering all assets owned by the decedent, all claims owed to the decedent, and the payments of all liabilities owed by the decedent or the estate of the decedent and the distribution of remaining assets to beneficiaries.
If this sounds complicated, that’s because it is, according to the article “The probate talk: Administrators, creditors and beneficiaries need to know” from The Dallas Morning News.
The admission of a decedent’s will to probate may be challenged for up to two years from the date it was admitted to probate. Many people dismiss this concern, because they believe they have done everything they could to avoid probate, from assigning beneficiary designations to creating trusts. Those are necessary steps in estate planning, but there are some possibilities that executors and beneficiaries need to know.
Any creditor can open a probate estate and sue to pull assets back into the estate. A disappointed heir can sue the personal representative and claim that designations and transfers were made when the decedent was incapacitated, unduly influenced or the victim of fraud.
It’s very important that the personal representative handles estate matters with meticulous attention to detail, documenting every transaction, maintaining scrupulous records and steering clear of anything that might even appear to be self-dealing. The personal representative has a fiduciary duty to keep the beneficiaries of the estate reasonably informed of the process, act promptly and diligently administer and settle the estate.
The personal representative must also be in a position to account for all revenue received, money spent and assets sold. The estate’s property must not be mixed in any way with the personal representative’s own property or funds or business interests.
The personal representative may not engage in any self-dealing. No matter how easily it may be to justify making a transaction, buying any of the estate’s assets for their own benefit or using their own accounts to temporarily hold money, is not permitted.
The personal representative must obtain a separate tax identification number from the IRS, known as an EIN, for the probate estate. This is the identification number used to open an estate bank account to hold the estate’s cash and any investment-grade assets. The account has to be properly named, on behalf of the probate estate. Anything that is cash must pass through the estate account, and every single receipt and disbursement should be documented. There’s no room for fuzzy accounting in an estate administration, as any estate planning lawyer will advise.
Distributions don’t get made, until all creditors are paid. This may not win the personal representative any popularity contests, but it is required. No creditors are paid until the taxes are paid—the last year’s taxes for the last year the decedent was alive, and the estate taxes. The personal representative may be held personally liable, if money is paid out to creditors or beneficiaries and there’s not enough money in the estate to pay taxes.
If the estate contains multiple properties in different states, probate must be done in all of those different states. If it is a large complex estate, an estate planning attorney will be a valuable resource in helping to avoid pitfalls, minor or major.
If you have questions about the probate process go to my website and schedule a FREE call with me.
Reference: The Dallas Morning News (May 16, 2021) “The probate talk: Administrators, creditors and beneficiaries need to know”