The decedent’s estate planning documents might include a last will and testament as well as and funeral, cremation, burial, or memorial instructions. They might include a revocable living trust. The original documents should be stored in a safe place until they can be given to the estate attorney. The decedent’s important papers will include information about their assets, including:
Bank and brokerage statementsStock and bond certificatesLife insurance policiesCorporate recordsCar and boat titlesDeeds to real estate
This inventory will also include information about the decedent’s debts, such as utility bills, credit card bills, mortgages, personal loans, medical bills, and the funeral bill. A list should be made of what the decedent owned and owed. Also list how each asset is titled—in the decedent’s individual name, as a tenant in common, in joint names, or in trust. Note the values of assets or debts that have statements. This information should be listed on the statements, along with the date of the statements. The decedent’s prior three years of income tax returns should be set aside as well. The next step is to meet with an estate lawyer to open the estate with the probate court after the decedent’s important documents have been sorted through. While these documents will vary from state to state, or even from county to county within the same state, they will generally include the following:
Petition for probate administrationOath and acceptance of personal representative/executorAppointment of resident agentJoinders, waivers, and consentsPetition to waive bondOrder admitting will to probateOrder appointing personal representative/executorOrder waiving bondLetters of administration/letters testamentary
All financial institutions where the decedent’s assets are located must be contacted to obtain the date-of-death values. Assets like real estate, personal effects (including jewelry, artwork, and collectibles), and closely held businesses will have to be appraised professionally. The probate court will only require a date-of-death value for the decedent’s probate assets to be listed on the estate inventory. If the decedent’s estate is taxable—on the federal or state level—then the date-of-death values will also need to be established for the decedent’s non-probate assets. These assets will include those owned as:
Tenants by the entiretyJoint tenants with right of survivorshipPayable-on-death accountsTransfer-on-death accountsLife insuranceRetirement accounts, including IRAs and 401(k)sAnnuities
It is the executor’s job to figure out what bills the decedent owed at the time of death. They are responsible to determine whether the bills are legitimate, then pay them if they are. The executor will also be responsible for paying the ongoing expenses of administering the estate, including legal fees, accounting fees, utility bills, insurance premiums, and mortgage payments. The executor will have to prepare and file the decedent’s final federal and state income tax returns and timely pay any taxes that may be due. The final federal income tax return—IRS Form 1040—will be due on April 15 of the year after the decedent’s year of death. The executor must also prepare and file all required federal estate income tax returns—IRS Form 1041—as well as any required state estate income tax returns, if the estate earns income during the course of administration. The executor will be responsible for preparing and filing the federal estate tax return—IRS Form 706—or a state estate tax or inheritance return, and paying the tax bills if the decedent’s state is taxable for federal or state estate tax purposes. Some estates might be required to file a federal estate tax return even though no estate tax will be due. The value threshold of the estates that require these filings will vary by state. Some states do not tax the estate, but they might tax beneficiaries. The final step in settling the estate is to make distributions of what’s left to its beneficiaries after any income tax and estate tax issues have been resolved. The personal representative or executor must be certain that every single expense of administering the estate and all taxes have been paid before making any distributions, or that enough assets have been set aside to pay the final bills and taxes. Otherwise, the executor will have to pay these expenses out of their own pocket if they make distributions to the estate’s beneficiaries, but expenses come up later. The executor should work closely with the estate lawyer and accountant to plan for setting enough assets aside to pay the ongoing estate expenses if administration of the estate is expected to take more than a year. Distributions to the estate’s beneficiaries might be made in multiple stages.
