The settlement of a decendent's estate is a process. The careful observance of the process helps to ensure that the estate is settled efficiently and, in cases involving a will, in accordance with the decedent's wishes. Disregard for the process can have the opposite effect and may even lead to personal liability for the executor. Because the process itself is a necessary blend of diligence and order, and may seem overwhelming to most, here is an insider’s perspective on the estate settlement process.
Assessment
The process begins with the assessment of the estate “landscape.” The decedent’s estate planning documents, if any, should be secured and carefully reviewed. Among other things, these documents will identify the party responsible for administering the estate (the “executor”) and the parties entitled to receive estate assets. Simultaneously, the executor should determine the nature and extent of the decedent’s assets and, if necessary, take appropriate steps to secure them.
Establish Authority
The executor should next take steps to ensure that he or she has the requisite authority to act on behalf of the estate. This step is fairly quick and simple when administering trusts (assuming proper funding during the decedent’s lifetime). However, within the context of probate estates, this step involves the filing of an application and supporting documents with the probate court. In either case, the objective is to obtain a formal grant of authority sufficient to permit the executor to demand possession of the decedent’s property from third parties and to otherwise conduct business on behalf of the estate (as the decedent could during his or her lifetime).
Identify Challenges
The executor should be prepared to address any challenges to the decedent’s estate planning documents or other unexpected claims asserted against the decedent’s estate. Disputes of this nature will be resolved in the probate court (a specialty court that deals with, among other things, trust and probate estate administration).
Claims Evaluation
Claims against the decedent must be assessed and, if valid and the estate is solvent, paid by the executor. In Michigan, a decedent’s creditors generally have four months from the date they receive notice of the decedent’s death to present their claim to the executor. Otherwise, the claim may be forever barred. The executor may “disallow” any claim that the executor believes is invalid. Upon disallowance, the burden is on the creditor to pursue the claim in probate court. This statutory framework is intended to facilitate the efficient settlement of decedents' estates.
Taxes
Tax matters are easily overlooked. These matters often involve the filing of state and federal income tax returns for the last year of the decedent’s life. The estate itself likely will also be required to file state and federal returns. Further, federal estate tax returns and basis reporting may be necessary in estates of significant value. Tax reporting not only involves various deadlines, but also provides opportunities for tax savings that should be assessed.
Beneficiary Distributions
Once taxes, debts and other liabilities are satisfied, the executor may proceed with the distribution of net estate assets to the beneficiaries. In some cases, distribution may involve the transfer of specific assets (i.e., real property). In many cases, however, distribution will involve liquidation of the assets and division of the estate into various shares.
Estate Accounting and Closure
The final part of the process (often undertaken concurrently with the distri-bution of assets) is the preparation of a final accounting (tracking estate activity from start to finish) and the closure of the estate. In this regard, the importance of good recordkeeping throughout the course of administration cannot be overstated. In some cases, probate court rules will require the submission of a final accounting to the court as a condition to closing the estate. Even if not required, it is advisable to prepare and circulate a final accounting as a means of assuring the beneficiaries that the estate was properly administered and to release the executor from liability.
The goal of any executor is to fully and completely administer the decedent’s estate. Adherence to the process reduces the risk that a critical issue will fall through the cracks during the course of administration (i.e., that a tax return is missed or a valid claim is unpaid). Such missteps may result in, at best, a substantial headache, and, at worst, personal liability for the executor. Accordingly, the executor that is mindful of the process may rest easy once administration has been completed, knowing that this particular chapter of the executor’s life is closed.