Being named Executor or Trustee of your loved one’s estate is an honor—your loved one tasked you with the important duty of managing his or her end-of-life affairs. However, serving as Executor or Trustee is also a huge responsibility that comes with a lot of specific duties.
The process of settling an Estate or Trust should be thought of more as a marathon than a sprint. With the exception of small estates (less than $20,000 or $30,000, depending upon the nature of the Estate), it usually takes six to twelve months to properly administer an Estate. Any disputes that arise during the administration of the Estate can delay Estate Administration significantly (sometimes years).
The CFEP Estate Administration Process is designed to guide you through the process of administering your loved one’s affairs as smoothly and efficiently as possible. Depending on the size and nature of your loved one’s Estate, some of the meetings or phases can be skipped or combined for greater efficiency.
Our goal is to help minimize the stress and anxiety and ease the burden of handling the Estate Administration, so you can get back to what is most important—remembering your loved one and celebrating their life.
Phase 1: Information Gathering
Prior to beginning any formal legal process, filings, or documentation, it’s important to first take a 10,000-foot view of the Estate. During the Information Gathering phase, you should begin gathering important documents. This may include your loved one’s Last Will and Testament and any Trust documents, checkbook, bank statements, credit card statements, business documents, deeds, automobile titles, life insurance policies, retirement account statements, tax returns, and other important documents.
You will want to consider meeting with and retaining a law firm to guide you through the Estate Administration process, if you haven’t yet hired a lawyer to assist you. While being named as an Executor or Trustee is an honor, it also comes with a significant amount of personal liability. An Executor or Trustee is held personally liable if they do not handle the Estate correctly. Exercising due diligence and hiring a reputable law firm to assist you limits your liability exposure.
Phase 2: Legal Authority
The next phase is to execute and file the appropriate legal documents and/or Court filings to become legally recognized as the Executor or Trustee of the Estate. Prior to being legally recognized as Executor or Trustee, you do not yet have the legal authority to act on behalf of the Estate or Trust or to sign documents on behalf of the Estate or Trust.
For an Estate without a Last Will and Testament, you would petition the Court to be appointed as Administrator of the Estate. From a practical perspective, “Administrator” is more or less the same as an “Executor.” It is merely a subtle legal distinction that reflects that this is an Estate without a Last Will and Testament that formally nominates an Executor. For an Estate with a Last Will and Testament, you would petition the Court to be recognized as Executor.
The term “Personal Representative” is sometimes used as a more general term to encompass either Administrator or Executor. For the purposes of this guide, we’ll generally use the term “Executor” to generically refer to an Administrator, Executor, or Personal Representative, as Executor is the term people are most familiar with.
When petitioning the Court for appointment, there are additional supporting actions that may be required, such as the taking of an Oath, formal resignation by others named as Executor who do not wish to serve, and possibly posting a bond insuring the Estate against inappropriate actions on your part as Executor.
If there is a Last Will and Testament, it must be submitted to the Court for Probate. Technically the term “Probate” means “to prove the Will”—meaning that the Court accepts and approves the Will as meeting the basic legal requirements. Following the “Probate” of the Will comes Estate Administration—the actual handling of the Estate and claims against the Estate. Generally, people refer to this entire combined process as “Probate.”
The Court will issue formal documents recognizing you as either Administrator or Executor of the Estate: Letters of Administration if there is not a Will; Letters Testamentary if there is a Will.
If the Decedent had a Trust, the Trust document will include specific instructions regarding whom shall be appointed as Successor Trustee. Often, the Successor Trustee(s) are the same individual(s) named as Executor under the Will.
The Successor Trustee of a Trust becomes legally recognized by signing a Certificate of Trust. The Certificate of Trust sets forth key provisions of the Trust, including information regarding the Decedent, the name of the Trust, who is named as Successor Trustee, the mechanism by which the Successor Trustee is being appointed (i.e., the death of the Decedent), and that the Successor Trustee has accepted the role of Trustee.
Phase 3: Fiduciary Responsibility
By being formally recognized as Executor or Trustee, you have accepted certain fiduciary responsibilities for the proper and prudent management of the Estate Administration. As mentioned above, hiring a law firm to guide you through the administration process is a smart way to reduce your personal liability. Your law firm should provide you with guidance regarding your duties as Executor or Trustee and should guide you through the administration process to ensure your responsibilities are carried out in a timely, organized, and accurate manner.
Once you have been appointed as Executor or Trustee, it’s time to start notifying key organizations and institutions regarding your role. This generally includes notifying:
- Any Beneficiaries of the Estate;
- Any financial institutions with whom the Decedent held accounts, life insurance policies, annuities, or similar;
- The Social Security Administration;
- The Veteran’s Administration;
- The Internal Revenue Service;
- The Decedent’s employer (or former employer if the Decedent was retired); and
- Known creditors of the Estate and unknown creditors of the Estate by newspaper publication.
Phase 4: Inventory & Valuation
During this phase, you will identify and gather all your loved one’s assets, including those owned individually, in trust, or owned jointly with someone else. The appropriate steps during the Inventory and Valuation phase can vary significantly depending upon the nature of your loved one’s estate, but generally this phase will involve:
- Locating and gathering the assets of the Estate (particularly in today’s world of online banking and online statements, this can be more difficult than it sounds);
- Opening a checking account for the Estate for use during the Estate Administration process;
- Obtaining verifications of date of death values of all estate assets; and
- Preparing an inventory of the Estate assets.
Phase 5: Creditors & Taxes
As Executor or Trustee, you have a fiduciary duty to properly identify and notify creditors of the Estate, determine the validity of all claims presented against the Estate, and then satisfy the claims of the Estate from the Estate assets.
If there are insufficient liquid assets in the Estate to satisfy claims against the Estate, then it may be necessary to sell Estate assets in order to satisfy claims. If all the assets of the Estate are insufficient to satisfy valid claims against the Estate, then the North Carolina General Statutes dictate a specific order of priority in which claims against the Estate should be settled until all estate funds have been depleted.
Claims against the Estate include any tax filings required to be filed on behalf of the Decedent or the Estate. This may include unfiled income tax or gift tax returns of the Decedent, income tax returns for income generated during the Estate Administration process, or an Estate tax return.
Generally, it will prudent for you to engage the services of a tax preparer to assist you with preparing and filing any applicable tax returns. If you do not have a tax preparer, your law firm should be able to provide you with an appropriate recommendation.
Phase 6: Distributions
Depending on the size and nature of the Estate, some distributions may be made during the previous phases, but often the bulk of the distributions should not be made until you have determined that there are sufficient assets to satisfy all claims against the Estate.
Depending on your loved one’s instructions in their estate planning documents, the distributions may involve outright distributions to Beneficiaries, or the establishment of trusts for their benefit.
This phase generally involves an accounting to the Court and/or Beneficiaries regarding the assets of the Estate, claims and expenses paid by the Estate, and the distributions to be made from the Estate. To protect you from liability, the Court or Beneficiaries are asked to review and approve the accounting. Further, when making distributions to the Beneficiaries, you should ask the Beneficiaries to sign a Receipt and Release acknowledging the distribution and releasing you from liability—this is a critical step that should be handled with care. If you have engaged a law firm, they should help you with this step to ensure that you are limiting your liability.
Phase 7: Closing the Estate
The final phase will include petitioning the Court to certify that you have completed your duties as Executor and asking the Court to discharge you from your role as Executor. If you were required to obtain a bond, once you are discharged as Executor, you will cancel the bond.
By this point, there typically should not be any assets remaining in the Estate, as they will all have been distributed to the Beneficiaries or to trusts for the Beneficiaries, so it should not be necessary to provide further notice to any financial institutions. However, you will want to notify the Internal Revenue Service that your fiduciary role has been terminated.
If you are serving as Trustee for any on-going Trusts for the Beneficiaries, then you’ll want to review the Trust’s instructions regarding any on-going duties as Trustee.
Lastly, you’ll want to review any ongoing planning concerns or opportunities. For example, it may be appropriate for a surviving spouse to update estate planning documents or Beneficiary designations. Or, you or other Beneficiaries of the Estate may need to establish your own estate plans now that you have received an inheritance from your loved one.
Losing a loved one is hard. The days and weeks after a loss are often fraught with grief, questions, and unfortunately, family complications. It’s a terrible time to try to think through a legal process clearly. It’s often a challenge just to know where to start. Maybe you’re not even sure what questions to ask and whom to ask. How do you know you’re getting good advice and doing it right? You could probably use some help. Our Understanding Estate Administration guide can help. This guide will give you an overview of the probate and estate administration process in plain English. Request your free copy here.