Estate administration is the settlement of the estate of a deceased person (the “decedent”). A fiduciary satisfies creditors, distributes assets to beneficiaries, and pays estate taxes. This column considers estate administration where a decedent dies (1) with a will or (2) without a will. In both situations, New York’s Surrogate’s Court (“Court”) has jurisdiction.
A testator leaves assets to beneficiaries through a will. A will identifies (a) beneficiaries to inherit assets; (b) an executor to administer the estate; and (c) a guardian for orphaned, minor children. When the testator dies, the will must be probated. Probate is the process whereby the court authenticates the will and appoints an executor to administer and settle the estate. Usually, the person named as the executor initiates the process by filing a petition in the Court.
The court authenticates the will by verifying that it is an original (i.e., not a copy) and confirming that it was properly signed and witnessed. This can be accelerated if there is a self-proving affidavit. If the will is authentic and executor is qualified to serve, the Court will issue letters testamentary, which give the executor authority to act for the estate.
Intestacy is the state of dying without a valid will. If (1) the decedent did not execute a will, (2) Court rules that the will is invalid, or (3) no one can find the original will, then the decedent is “intestate.” Assets that do not pass to beneficiaries through a trust or by beneficiary designation or joint ownership are administered under New York’s laws of descent and distribution. The law outlines a distribution plan based on the relationship that a spouse and surviving relatives had with respect to the decedent. People who inherit from the estate are “distributees.”
For example, at the time of death, if the decedent had a spouse and children, the spouse gets $50,000 and half of the remaining assets. The children get the remaining half of the balance in equal shares. At the time of death, if the decedent was married and has no surviving descendants (i.e., children, grandchildren, etc.) the spouse inherits everything. The law goes into extensive detail to cover other situations.
Intestate estates do not have an executor. Rather, the court appoints an “administrator” to settle the estate. Often, this is the person who initiates the administration process by filing a petition at the Court. Among other things, the petitioner files information with the Court to notify the decedent’s relatives. If fit to serve, the court issues letters of administration that authorize an administrator to represent the estate.
II. Administration of Probate and Intestate Estates
Executors and administrators are “fiduciaries.” Executors, who are appointed by letters testamentary, owe a fiduciary duty to the beneficiaries named in the will. Administrators, who are appointed by letters of administration, owe a fiduciary duty to the distributees named in the laws of descent and distribution. (Letters testamentary and letters of administration will be referred to, collectively, as “letters.” Beneficiaries and distributees will be referred to, collectively, as “beneficiaries.” Probate and administration will be referred to, collectively, as “proceedings.”)
B. Before Receiving Letters
Before receiving letters, fiduciaries will likely have to use estate property for some limited purposes (e.g., reasonable funeral expenses; mortgage payments for the estate). Also, they must secure the home, automobile, and valuables.
C. After Receiving Letters
After receiving letters, the fiduciary must marshal the estate’s property including accounts, personal property, real estate, and safe deposit boxes. The fiduciary should review account activity to ensure that charges are valid. One can enter contracts, sell property, or bind insurance coverage to meet the estate’s needs. Also, one may consult with advisors, such as an attorney and accountant.
Many people have heard that probate can last for years and deplete estates. Usually, however, proceedings do not last very long, unless the estate is difficult to manage or relatives fight. After receiving letters, the fiduciary waits at least seven months to distribute assets to beneficiaries. During this “creditors period,” good faith creditors with valid debts can seek payment from the estate. Afterwards, the fiduciary can safely distribute assets.
Executors and administrators are subject to court supervision. One should keep detailed records of activities, including an inventory of assets; and money received into, distributed out of, and retained by the estate. Beneficiaries are entitled to a report (i.e., an account) of all of acts performed for the estate.
Finally, the fiduciary completes estate tax returns. The tax is based on the size of the gross taxable estate, which includes (1) the probate estate or intestate estate, (2) pay-on-death or transfer-on-death accounts, (3) property that passes to beneficiaries based on beneficiary designations (e.g., life insurance and retirement plans), and (4) property owned jointly with the right of survivorship. The amount on which federal estate tax is owed and the tax rate depend on the federal and state law. State estate taxes differ from state to state. Effective estate planning attempts to minimize the tax owed.
About the Author: Bryan L. Berson, Esq. is an attorney and mediator at The Berson Firm, P.C., a commercial and civil law firm that handles estate administration and planning, real estate, commercial transactions, mediation, and commercial litigation. His e-mail is email@example.com. His phone number is (631) 517-1055. Connect with The Berson Firm on Facebook and Bryan L. Berson on LinkedIn. The firm’s website is www.bersonfirm.com.
Disclaimer: Constructive Knowledge is published by The Berson Firm, P.C. (the “Firm”). The information contained in this column is provided for informational purposes only. It is not tax or legal advice on any subject matter. No readers, clients or otherwise, should act or refrain from acting on the basis of any content without seeking appropriate legal or other professional advice with respect to one’s particular circumstances. This column reflects a general discussion of the law in New York. It may not accurately reflect the law of other states. The content is general information and may not reflect current legal developments, verdicts, or settlements. The Firm expressly disclaims all liability with respect to acts taken or not taken based on any or all content of this column. This column is Attorney Advertising. IRS Circular 230 Legend: Nothing in this column is intended to be used and cannot be used to avoid U.S. federal, state, or local taxes. It was not written to promote, market, or recommend any tax planning strategy or action. Copyright: All rights reserved. No part of this publication may be reproduced without prior written consent. Readers may share this column through, but not limited to, social networks.