If you have been called upon to act as a fiduciary for a loved one’s estate, it may be helpful to be familiar with estate administration in California and the distribution of property. When a resident and/or property owner in California dies, that person’s estate must go through a legal process known as probate. In California, if there was a will, and a personal representative was named in the will, that person is referred to as an “executor.” However, if there was no will, or if the will does not name someone, the court will appoint a personal representative, referred to as the “administrator.”
The Purpose of the Probate Process
Probate is the process of gathering the property and assets of the deceased, safeguarding that property and using it to pay all debts and taxes owed by the deceased or the estate. If there is no will, the probate process will allow the court to make the legal determinations as to who the beneficiaries of the estate will be, then distribute those shares according to the law.
The general steps in estate administration
In California, the probate process is commenced in the superior court in the county where the deceased was living at death. After the initial petition is filed with the court, a hearing will be set for thirty days later. A notice of that hearing must be published, according to the court’s procedures, to notify not only the public, but also all potential heirs and creditors.
The executor needs to take possession of the estate’s assets, but only those that are subject to probate. If title to a particular asset needs to be transferred to someone else, the executor takes care of that, as well.
The priority of distribution of assets
When it comes time to distribute the assets of the estate, creditors will be paid first. This includes all legitimate debts, as well as funeral expenses. In California, all creditor claims must be submitted within four months after the executor or administrator is appointed by the court. Next, the estate taxes must be paid to the federal government and the State of California. The final distributions are to the heirs or beneficiaries.
Distributing inheritances to heirs and beneficiaries
If there is a will or trust, which provides for specific gifts, of cash or property, to specific individuals, then those bequests are distributed first. After those distributions are made, the balance of the property is distributed to whomever is entitled to the remainder. In some cases, the property can be distributed outright, but sometimes it must be transferred to a trust for a particular person or persons.
One mistake to avoid when administering an estate
One of the worst mistakes an executor can make is to distribute property to the beneficiaries before all debts or taxes have been paid. Although the executor is not generally liable for the debts or taxes of the estate, if there are insufficient funds to meet the estate expenses, the executor might be personally liable. In some states, you need to obtain court approval before any distributions can be made to the beneficiaries, which is a good thing. The estate tax consequences can be surprising, so it is important to follow the steps carefully.
Obtain legal or financial advice whenever necessary
As the executor, never make any assumptions about what should be done. The terms of every will or trust are typically very different. In other words, there is no such thing as “standard” distribution provisions. If you do not have financial experience, it would be a good idea to consult with a professional about making investments of the trust assets. That way you will know which assets you should sell to produce cash for expenses, taxes or cash gifts, and how to minimize income and capital gains taxes. You cannot always rely on simply maintaining the investments that were already in place.
Don’t forget to pay the estate taxes
Part of administering the estate include filing the annual income tax statement (Schedule K-1) to each beneficiary who earned taxable income from a trust. An annual income tax return must also be filed for the trust, usually by April 15th. If the return is not filed timely, the administrator can be held personally liable for any interest and penalties.
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