The Steps of Post-Mortem Administration

The Steps of Post-Mortem Administration

When the administration of a decedent’s estate begins, those who are most directly concerned are often uncertain about what to expect and how to proceed. Most clients are not familiar with the administration of decedent’s estates and with the many steps to be taken before the estate may be distributed and closed.

This memorandum will outline in general form the matters to be considered in the administration of a decedent’s estate and the obligations one assumes as a trustee of the trust. A memo such as this must be general in nature. Most of what is contained this memo applies to all estates regardless of whether the trustee is an individual or a financial institution. However, our primary purpose is to introduce individual trustees to the process of administering a decedent’s estate and to possibly anticipate some of your questions and concerns.

As trustee of the trust, you are the person designated to administer the decedent’s estate. The succeeding paragraphs are in a certain order, but are not written in any order of importance or in any chronological sequence. Some of them may not be applicable to your decedent’s estate.

I. PURPOSE OF ADMINISTRATION

In general all steps in the administration of the estate will be directed toward three major goals: (1) the collection, conservation and valuation of assets, (2) the payment of debts and taxes, and, (3) the distribution of the balance of the assets as provided in the trust. Your duties as trustee would be to collect and conserve, manage and control the assets of the estate, pay the debts and taxes, and distribute in accordance to the terms of the trust. The law expects you to use care and diligence in carrying out these duties.

As the trustee of your trust, you in general will conduct the following:

a. Take possession of all of the estate’s property insofar as practicable.

b. Collect all dividends, interest and other income, and deposit all such items in an interest-earning estate bank account(s) until the estate is closed.

c. Keep a detailed account of all your receipts and disbursements for the estate, listing the date, source and amount of each receipt, and the date, nature of payment and amount of each disbursement.

d. File all tax returns and pay all taxes on a timely basis.

e. Keep the estate property adequately insured, reviewing all casualty, property and liability insurance policies for the possible need for additional insurance.

As trustee you should not do any of the below listed actions without determining whether you have the legal right to do so, and in addition, the legal affect of having performed one of the following:

a. Selling any property of the estate.

b. Giving away any of estate property.

c. Leasing any estate property.

d. Paying or compromising any debts or claims of the estate.

e. Selling stock, exercising subscription rights, or buying stocks or bonds for the estate.

f. Distributing estate property to any devisee or legatee.

g. Depositing estate funds in your personal account or otherwise co-mingling estate property with your own.

h. Borrowing money, signing notes, executing a mortgage, deed, or other lien agreement on estate property.

i. Distributing to a minor or to one under an incapacity.

There are certain things which obviously have to be performed on an immediate basis and you should take the necessary steps to perform the following:

a. Determine and carry out the decedent’s wishes with respect to funeral, burial, cremation, etc.

b. Locate the original trust document.

c. Maintain the decedent’s home.

d. Protect the decedent’s property.

e. Provide for support for the decedent’s dependents.

f. Notify the State Director of Health Services if the decedent was receiving Medi-Cal benefits.

g. Notify Social Security or other pension/retirement account provider of death of decedent so that payments are stopped timely.

The circumstances of each decedent vary widely, and temporary needs will be met differently in each case. But one rule is constant: once a trust becomes irrevocable and the named beneficiaries are therefore locked in or vested as a beneficiary, a 120-Day Notice Letter needs to be sent to all named beneficiaries and all disinherited beneficiaries. The purpose of the Letter is to inform the beneficiaries that they are in fact a beneficiary and, as such, have a right to see the trust. Furthermore, the Letter informs the beneficiary that they have only 120 days to object to the content of the trust, or forever hold their peace with it.

Outside of the mandatory 120-Day Notice Letter there usually are alternative solutions for special problems and temporary difficulties that may exist during the period between death and the final distribution of the estate. These will have to be handled on a timely basis.

II. COLLECTION AND MANAGEMENT OF ASSETS

You are to take possession of all of the trust property and assure its safekeeping.

A. VALUABLES

Securities, jewelry, and other items of substantial value should be kept in a safe deposit box in the name of the trust or in another equally secure location.

B. BANK AND SAVINGS AND LOAN, CREDIT UNION ACCOUNTS

These accounts in which the decedent had an interest should receive your early attention.

1. The date-of-death balance of any joint tenancy accounts should be transferred to yourself as the surviving tenant or to the person who’s name is the other tenant, POD, TOD, or named beneficiary.

2. The title of each account that stood in the trusts’ name should be transferred into your name as trustee.

3. All of the decedent’s outstanding checks should be identified and listed.

C. RECORD OF DECEDENT’S PROPERTY; INSURANCE CONSIDERATIONS

An inventory and appraisal of the estate assets should be prepared as well as a complete list of all of the decedent’s property. For that purpose you should keep an accurate record of all amounts the estate receives as payment on medical insurance, debts to the decedent, and refunds, rebates or similar items.

As soon as you have collected the necessary information, prepare the inventory list. For gift and estate tax purposes, you will need lists of all property that was held in joint tenancy and each gift valued at more than $13,000 that the decedent may have made during his or her lifetime.

1. Insurance Policies

You should prepare a list of all of the decedent’s life insurance policies. You should also investigate if there are any beneficial interest which the decedent had in anyone else’s life insurance policies. After you have examined those policies, you or any beneficiary should complete and file the proper insurance claim forms.

2. Insurance Riders

Riders should be issued on policies of insurance on your property, adding your name as trustee as an insured. If the assets have to be appraised, please review the policies to insure that the coverage is adequate.

D. MANAGEMENT AND SALE OF ESTATE PROPERTY

It may become necessary to sell some of the estate’s property, either because an item should be disposed of to avoid needless expense or loss through depreciation in value, or to raise cash to pay expenses, taxes, or legacies. You should not make any arrangements for the sale of assets without first estimating the cash requirements of the estate to help you determine what, if any, assets should be sold.

You may wish to retain our office, auditors, accountants, or other tax experts for any action that they may lawfully perform in computation, reporting, or preparing tax returns, in payment of taxes, or in any negotiation or litigation that may be necessary. Our office will naturally assist in the organization of all post-mortem duties that are discussed herein.

If your gross estate is over $3,500,000, it may be necessary to file the federal gross estate tax return and the California tax return, as well as the filing of the federal and state tax returns. You may prefer to have an accountant prepare some or all of these returns. In any event, it is critical to assign the responsibility for these returns to assure timely filing.

III. HANDLING DEBTS AND TAXES

A. CREDITORS’ CLAIMS

For your protection, you should not pay any claims against the estate without conducting a thorough evaluation as to their validity.

B. ESTATE TAXES (Estates over $3,500,000)

1. California

California has no inheritance tax for any resident who died after June 8, 1982, except for the pick-up tax associated with the statutory allowable credit for state death taxes under Internal Revenue Code Section 2011.

2. Federal Estate Tax Return

The United States government levies an estate tax based on the decedent’s right to transmit property at death. The estate tax is normally paid by the estate, but may be allocated and charged to the beneficiaries of the estate under certain circumstances. A return must be filed for the estate of a decedent if the estate has a gross value of $3,500,000 or more. The federal estate tax is based upon the value of the assets included in the estate for tax purposes as of the date of death, or, at the estate’s option, as of the date six months after date of death. The latter date is called the alternative valuation date.

Before the date in which the tax is due you should make a rough calculation of the general estate tax to enable you to provide an outline of the estate’s cash needs for death taxes, if any. A general outline of cash needs for all administration expenses should be made as soon as possible.

Certain United States Treasury Bonds may be redeemed at par and satisfaction of the estate tax, even if the market value is less than par. If the estate holds any of these eligible bonds, they should not be sold until the federal estate taxes have been finally determined by audit and paid.

3. Gift Taxes

If the decedent made any gifts in the year prior to his or her death, it may be necessary to file federal and state gift tax returns. It may also be necessary to file delinquent gift tax returns for unreported gifts made by the decedent in prior years.

Gifts taxes paid after death are deductible on the estate tax return, but any federal gift tax paid or payable with respect to gifts made within three years of decedent’s death must be included as an asset on the federal estate tax return.

C. INCOME TAXES (all estates)

Final income tax returns must be filed for the portion of the year prior to the decedent’s death and are due by April 15 of the following year. Extensions of time to prepare such returns can be obtained if necessary.

You may select a fiscal year ending for the estate or the selection of a different fiscal year ending as it may be to the advantage of the estate to do so as it relates to incomes tax matters.

D. REAL PROPERTY TAXES

You must plan to pay all real property taxes when due. The first installment of taxes in California or real property is delinquent on December 10th, and the second installment is delinquent on April 10th.

IV. DISTRIBUTING THE ESTATE

On the termination of the trust, it is your responsibility to determine to whom the trust assets should be distributed. Your records should include all of the names and addresses of the beneficiaries who are expected to take.

You as the trustee should check with members of the beneficiaries’ families to make certain that no births or deaths have occurred that would alter the proposed plan of distribution. If a beneficiary is a minor or under an incapacity, you should refer to the trust instrument for special instructions as contained therein.

If the distributee is an adult for whom a conservator has been appointed, you as the trustee should distribute to the conservator unless the trust provides an alternative.

If the distributee has executed a durable power of attorney, you as the trustee can distribute to the beneficiary’s agent if the powers granted to the agent allow administration of the property being distributed. If you believe that a beneficiary who has not executed a durable power of attorney and has no conservator is incapacitated, it may be necessary to establish a conservatorship or a Special Needs Trust.

You as the trustee have a duty to find the beneficiaries. If necessary, after making all reasonable efforts to locate a missing beneficiary you may employ a detective or heir hunter to locate the person. You as the trustee must make all reasonable efforts under the circumstances and should not deplete the entire trust estate to locate one beneficiary.

If a beneficiary cannot be located after all reasonable efforts have been made, you as a trustee must hold that person’s share of the trust assets. After five years the assets will escheat to the estate.

Once the identities of the beneficiaries have been established you must determine what must be distributed to them.

Where specific gifts are made in the trust, if the interest of the beneficiaries and the creditors are adequately protected, you can go ahead and make a partial distribution.

If the specified assets are not part of the trust, you as the trustee nor the trust is under a duty to distribute anything to these beneficiaries as long as the assets have not been disposed of contrary to the trust terms, although as the trustee you should attempt to retain specifically mentioned assets if at all possible.

After you have made the specific gifts the trust instrument may provide that the remaining assets are to be distributed to certain beneficiaries in equal shares or to certain classes of beneficiaries by right of representation.

You should be advised that a preliminary distribution may cause adverse estate tax results if a distribution occurs within the first six months after death and there is a desire to value the assets on the alternative valuation date.

B. FINAL DISTRIBUTION

You should be advised that after you have identified the beneficiaries that you should notify that the trust has terminated. You may want to do so before working out a proposed plan of distribution, although in that case you may want to again correspond with the beneficiaries to advise them what they may receive. You should also inform the beneficiaries of the approximate amount of time necessary to terminate the trust, as well as of any steps that must be taken; i.e., an accounting to a court if under court supervision or last payment of income taxes.

Final distribution of an estate can probably be made soon after the federal estate tax return is filed, if required, usually nine months after the date of death. When all debts and taxes have been paid and the estate is ready for final distribution, you should prepare a detailed breakdown of how the assets were to be distributed and set up any new trusts as required. Once again, we are prepared to assist you in the final distribution and will send such to the beneficiaries only after they sign the general release drafted by our office that releases you as the trustee from your duties.

C. FINAL STEPS

After delivery of the assets you must file the final estate tax returns. You should arrange for the storage of any trust records because the beneficiaries may need or request the information at a later time. You should keep the records for at least three years after all assets are distributed. There is no court procedure to discharge a trustee of a non-supervised trust.

You are advised to send out a receipt on distribution to each of the beneficiaries and have them sign that they have received the asset. This would help if any future dispute arises as to whether a beneficiary received his due under the trust. Our office will prepare a General Release that all beneficiaries will sign acknowledging the trustee’s job as well done, that they have no complaint, and that they will never bother the trustee again!

This concludes the general outline as to what has to occur in the administration of the estate.

Our office offers legal services to perform most of the above enumerated steps. If you so desire to engage our office to conduct any of the matters mentioned above, please contact us so that we may be retained and therefore be of service to you in this difficult time.

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