When an estate is probated, the courts supervise the transfer of the estate of the deceased in an organized manner. There are rules and procedures that must be followed, based on the probate laws of the state where the person resided. An executor or administrator will be appointed to oversee this process. If you have the honor of serving in that important capacity, there are a few common pitfalls in estate and probate administration that you should try your best to avoid.
The probate process in a nutshell
There are two primary goals in the probate process — paying the debts of the deceased and distributing assets to beneficiaries. Although the exact procedure and requirements may vary from one state to the next, the same general process is involved. After you are sworn in as the personal representative, the first step is to notify the creditors, the potential heirs and the public. Then the decedent’s property must be inventoried, before the assets in the estate can be distributed.
Don’t take lump sum distributions from retirement plans
When it comes time to inventory the estate property, you may feel compelled to liquidate all of the assets into cash. But that is not always the best option. Especially with pension plans, IRAs, or deferred compensation plan, as soon as you cash out the estate will owe income taxes on the proceeds.
Don’t miss any court deadlines
One of the worst mistakes to make is to miss a court-imposed deadline. Even if you could not complete a particular task by a set deadline, such as preparing the inventory, you should still appear in court and explain why you could not comply. Failing to appear in court, on the other hand, would be a huge mistake.
Don’t miss your tax deadlines
Just as you would not miss the deadline for filing your personal tax returns, filing the estate tax return or a return for a trust of the estate is equally important. The estate tax return (Form 706) is due within nine (9) months of the decedent’s death. Estate or trust tax returns are due on April 15th, just like personal income tax returns.
Don’t fail to communicate with heirs
It is important to remember to communicate with potential heirs and anyone else who is in line to receive specific property from the estate. If you keep them in the loop throughout the probate process, you can minimize the complaints. Heirs generally want to know when they can realistically expect to receive their property or funds.
Don’t commingle the funds
Although money is money, when it belongs to a trust, the principal needs to be kept separate from trust income. This is necessary when you are paying bills for the estate. The reason is, it may be necessary to pay different people from either the income or the principal. You are expected to make distributions and pay expenses from the correct account. If you make a mistake in this regard, you may be held legally liable.
If you have questions regarding trust administration, or any other estate planning needs, please contact the Schomer Law Group either online or by calling us at (310) 337-7696.