Estate and probate administration is important because it provides an organized way to transfer the assets of an estate to the beneficiaries, while under the supervision of the probate court. There are rules and procedures established in each state which must be followed by the administrator who is appointed to oversee the process. If you have been appointed as an administrator or executor, there are some common mistakes to avoid in administering an estate.
The basics of the probate process
The two basic goals of probate are to pay off the debts of the estate and distribute the remaining assets to the beneficiaries. Despite the differences in state probate laws, the same general process is required. Once you have been sworn in as the personal representative (administrator or executor), your first task should be to notify the creditors and potential heirs, as well as the public. The next step is to determine the nature and extent of the assets by performing an inventory of the property. The inventory must be completed before the assets can be distributed to anyone, even creditors.
Don’t miss any court deadlines
Probably the worst mistake you can make is failing to meet a deadline established by the court. If you see that you cannot meet a deadline, the best thing to do is to inform the court, and explain why you could not comply. If you are supposed to be in court, never fail to appeal, regardless of whether you were able to fulfill all of your obligations in time.
Don’t forget to communicate with heirs
In order to avoid potential complaints from expectant heirs or beneficiaries, be sure to communicate with them as much as reasonably possible. This includes anyone that may be in line to receive property from the estate. Heirs typically want to know when they can expect to receive their property. So, if you anticipate any substantial delays, keep them in the loop.
Avoid lump sum distributions from retirement plans
While creating an inventory of the estate’s assets, you may feel obligated to liquidate all of the non-cash assets. However, that is not always the best option for the estate. This is especially true for various retirement accounts, such as pension plans, IRAs and deferred compensation plans. That is because, as soon as you cash out the tax benefits will be lost and the estate will owe income tax on the proceeds.
Don’t commingle trust funds
You may be thinking, money is money, right? Not when it belongs to a trust. The trust principal needs to be kept separate from the trust income. In many cases, different people are entitled to distributions from the income or the principal. It is the responsibility of the administrator to make distributions and pay expenses from the proper account. If you make a mistake, you may be held legally responsible.
Don’t miss tax filing deadlines
You wouldn’t miss filing your personal income tax return on April 15th, would you? Filing the required estate tax return, or a tax return for a trust, is just as important. The estate tax return, which is IRS Form 706, must be filed within nine (9) months after the decedent’s death. Estate and trust tax returns are due on April 15th, just as personal income tax returns are due.