Taking on the role of an executor of an estate is a duty of great importance. You are tasked with managing the deceased person’s estate, ensuring their wishes are fulfilled, and distributing assets to beneficiaries. This process can be complex, so it’s essential to be well-prepared. Here are 12 key things to remember while settling an estate as an executor.
Understand Your Legal Obligations
As an executor, your role comes with significant legal responsibilities. You are considered a fiduciary, meaning you are legally obligated to act in the estate’s and its beneficiaries’ best interests.
This fiduciary duty requires you to handle the estate’s assets carefully, avoid conflicts of interest, and ensure that the distribution of assets is done according to the will or state laws. You should consider probate laws, which vary by state, consult with an attorney specializing in estate law, and file several documents with the probate court.
Secure the Estate
One of your first responsibilities as an executor is to secure the estate’s assets to prevent loss, theft, or damage. This involves taking immediate steps to protect both physical and financial assets.
You must secure the property and other valuable physical assets like jewelry, art, and collectibles. Notify banks, investment firms, and other financial institutions of the decedent’s passing to prevent unauthorized account access. Additionally, you must secure all online accounts and digital assets.
Notify Beneficiaries and Interested Parties
You must inform all beneficiaries and interested parties about the decedent’s passing and their potential inheritance. This step is essential for keeping things transparent and avoid disputes. Notify all beneficiaries in the will or those entitled to inherit under state intestacy laws if no will exists. You must also notify all known creditors of the decedent’s death. Certain government agencies, such as the Social Security Administration, must be notified of the death to stop benefits and prevent fraud.
Obtain the Death Certificate
The death certificate is a critical document required throughout the estate settlement process. It serves as official proof of death and is needed to access and transfer the decedent’s assets. Keep several attested copies of the death certificate handy.
Death certificates are typically issued by the vital records office in the county where the death took place. You can often order them through the funeral home or directly from the county’s vital records office.
Probate the Will
Probate is the legal process through which the court validates a will, and the decedent’s assets are distributed according to the will’s instructions. The original will must be filed with the probate court which will review the will to ensure it meets all legal requirements.
If the will designates you as the executor, the court will formally appoint you to this role. The duration of the probate process can vary, with simpler estates often moving through more quickly, while larger or more complex estates may take additional time.
Inventory and Appraise Assets
Creating a comprehensive inventory of the estate’s assets is a crucial step in managing the estate. This inventory will determine the estate’s value, pay debts, and distribute assets to beneficiaries.
Compile a detailed list of all assets, including real estate, personal property, bank accounts, and investments. In addition to assets, you must also account for any liabilities such as mortgages, loans, debt, and unpaid taxes. Document all assets, appraisals, and liabilities for the final accounting to the probate court.
Pay Debts and Taxes
Before you distribute the estate’s assets to the beneficiaries, settle any outstanding debts and taxes. This ensures the estate is free of liabilities and protects you from personal liability.
Begin by identifying all outstanding debts the decedent owed, such as credit card outstanding, personal loans, or any other liabilities. Use the estate’s assets to pay these debts. You are also responsible for filing the decedent’s final income tax return, which covers the tax year up to the date of death. Keep meticulous records of all payments made on behalf of the estate.
Handle Life Insurance and Retirement Accounts
Retirement accounts and Life Insurance policies typically have designated beneficiaries, meaning they pass directly to those individuals without going through probate.
Notify the life insurance company of the decedent’s passing with a copy of the death certificate. The insurer will then guide you. Retirement accounts such as IRAs, 401(k)s, or pensions, like life insurance, typically bypass probate. It’s also important to inform the beneficiaries of any potential tax liabilities.
Distribute Assets to Beneficiaries
Once all debts and taxes are taken care of, you can distribute the remaining assets to the beneficiaries. If there is a will, it will specify how the assets should be distributed among the beneficiaries.
Keep beneficiaries informed throughout the process. Transfer assets to the beneficiaries. To protect yourself from future claims, obtain signed receipts from beneficiaries. You may need to make equalization payments involving selling the asset and dividing the proceeds to balance the distribution.
File Estate Tax Returns
Depending on the estate size, you may be required to file federal and state estate tax returns. As of 2024, the federal estate tax applies to estates exceeding $13 million for individuals or $26 million for married couples (subject to change based on current laws).
The estate tax return, IRS Form 706, must be filed within nine months of the decedent’s death, though a six-month extension can be requested. You can work with an estate tax professional or CPA to ensure the returns are filed accurately and on time.
Keep Accurate Records
Maintaining thorough and accurate records throughout the estate settlement process is a legal requirement. These records are crucial if any disputes arise. Document every financial transaction. Include dates, amounts, and the purpose of each transaction.
Maintain a detailed inventory of the estate’s assets. Before closing the estate, prepare a final accounting summarizing all financial transactions. This accounting is typically filed with the probate court and must be approved.
Close the Estate
The final step in your duties as an executor is officially closing the estate. This process includes submitting the required paperwork to the probate court and obtaining a court order that releases you from your responsibilities.
You’ll need to present the final accounting to the court, which will review it and may hold a hearing before granting approval. Once the final accounting is accepted, the court will issue an order officially discharging you from your duties as executor.
