Introduction to Probate and Estate Administration
The emotional trauma brought on by the death of a close family member is often accompanied by bewilderment concerning the legal steps necessary to probate and administer an estate.
These responsibilities ultimately fall on the person appointed as Executor in the deceased family member's Will. Although not specifically stated, many of these steps are taken only after consultation with the attorney representing the estate.
LOCATING AND ANALYZING THE WILL
Once the Will is located, the Executor confers with family members and with other persons familiar with the decedent's affairs. An attorney is usually retained at this stage to represent the estate. The Will should be placed in a safe place until such time as the documentation necessary to probate the Will is complete and ready to deliver to the Clerk of Court.
If there is no Will, the attorney is consulted relative to the distribution of the decedent's probate property in that the same is dictated by the North Carolina General Statutes. The Statutes also dictate who may qualify for Administrator as well as the order of precedence for such persons.
OPENING THE ESTATE
Many of the more burdensome tasks of opening an estate such as delivering the Will to the Clerk of Court for probate, placing the advertisement for the Notice to Creditors in the local newspaper, and confirming the assets and their values are handled by the attorney. The attorney depends on the Executor and family members to provide the information needed to begin the estate settlement process. The Notice to Creditors advertisement will appear in the local newspaper once a week for four (4) consecutive weeks. Creditors of the estate will have three (3) months from the date of the first publication to present their claims to the estate. Therefore, the minimum time in which an estate can be settled is three (3) to four (4) months. Please keep in mind, however, that this would be a smaller estate not required to file an inheritance estate tax return. Those estates are generally settled in nine (9) to twelve (12) months.
GATHERING AND SAFEGUARDING ASSETS
The process of inventorying the estate can be overwhelming, especially if the Executor was not familiar with the decedent's financial affairs.
The Executor should gather the most recent statements of all bank accounts, stock accounts, and any other accounts that were owned, either individually or jointly, by the decedent and deliver the same to the attorney. Although joint with right of survivorship accounts pass to the co-owner by operation of law, rather than through the probate process, they must still be inventoried for estate inheritance tax purposes.
Most accounts are no longer "frozen", as was the case prior to recent legislation, and no longer require an Inheritance and Estate Tax Waiver. However, certain documentation is still required in order to close these accounts and move the assets into accounts in the name of the estate. The attorney assists the Executor with this process by applying for the federal identification number for the estate and gathering the documentation necessary to transfer the assets to the newly established estate account. The estate account is then used to receive any income into the estate and pay the bills of the decedent and other administration costs and expenses. Occasionally, in certain estates, a formal estate account is not necessary.
Original deeds to real property, car titles, mobile home titles, utility or boat trailer titles, boat registrations, and all other registered ownership documentation should be gathered and delivered to the attorney for safekeeping until such time as the ownership is transferred. Valuing this type of property may require formal appraisals such as for the real property or some research may be required such as compiling county tax valuations and blue book valuations.
Quite often, these items as well as original stock certificates, life insurance policies, and other important papers are stored in the decedent's safety deposit box at the bank. The Clerk of Court is no longer required to inventory a decedent's safety deposit box, but a copy of the inventory should be given to the attorney to be filed in the estate file. If there is a co-owner on the safety deposit box, the co-owner may inventory the box, but the Executor must be present in order to gather any items owned by the decedent. Again, certain documentation may be required and the attorney will assist with gathering the same.
After locating all paperwork relative to the decedent's finances and assets in the home place and safety deposit box, the Executor should then assure that the attorney receives copies of monthly statements for all accounts until such time as the account or the estate is closed and the funds are distributed. This "double check" assures an accurate inventory. It may also be prudent for the Executor to file for a change of address for the decedent with the United State Postal Service in order to assure that all correspondence directed to the decedent is reviewed by the Executor.
If the decedent owned assets that may be affected by the economy or the volatility of the stock market, the Executor should consult with a broker or financial advisor as well as an accountant due to possible tax implications.
Finally, relative to tangible personal property of the decedent, the executor should make every effort to protect any property that can be easily stolen. If there is a surviving spouse, this task is greatly reduced. If the decedent died while living alone, property such as jewelry, firearms, coin collections, artwork, and similar valuables should be gathered by the executor and protected. Opening an estate safety deposit box or arranging for warehouse storage might facilitate this task. The Executor should not hasten to distribute this property to the relatives soon after the funeral. There is plenty of time to accomplish this task and time is needed to appropriately plan the distribution of tangible personal property.
As alluded to earlier, once the assets of the estate are under the control of the Executor, the Executor has a duty to use good faith and reasonable diligence to protect such assets from damage or loss. Accordingly, the Executor should confirm that all property such as residential homes, vacation homes, rental property, automobiles, boats and jewelry, is adequately insured, if applicable, for theft, fire, wind, flood, or other relevant insurable events. Please note that a standard homeowner's policy may not provide adequate coverage for vacant homes, thus the existence of any vacant home should be brought to the attention of the insurance agent.
In general, valuation of assets of the decedent must be based on the date of death value. An experienced estate settlement attorney will be able to determine whether formal appraisals should be obtained and can assist greatly in determining these values. The initial inventory is only preliminary and the formal inventory filed with the Clerk of Court is not due until ninety (90) days after the opening of the estate.
LIFE INSURANCE, ANNUITIES, RETIREMENT BENEFITS AND SOCIAL SECURITY
Although life insurance, annuities, and retirement benefits pay directly to the named beneficiary, valuations are still required for estate inheritance tax purposes. The attorney will be able to assess whether any formal valuations, such as the IRS Form 712 for insurance proceeds, will be required depending on the size of the estate.
Either the Executor or the attorney can assist the beneficiaries of any life insurance policies, annuities or other retirement benefits with the claims process. This process varies greatly from company to company and the assistance of an experienced estate settlement attorney will many times speed the process.
Relative to Social Security benefits, most often, it is more convenient for the surviving spouse to handle the social security benefits claim process. The attorney can assist the surviving spouse by providing the documentation needed to process the claim. The Social Security Administration has a local office in New Bern, North Carolina, and a mobile satellite office that visits surrounding counties various days of the week. However, most claims can be processed over the telephone by calling 1-800-772-1213.
DEBTS OF DECEDENT AND CLAIMS AGAINST THE ESTATE
The Executor should gather all debts of the decedent such as the funeral bill, final medical bills, credit card accounts, mortgages and other debts. The Executor ascertains the nature and extent of any other claims against the estate, obtains proper verification for any claims, and rejects any improper claims.
The Executor is well advised not to allow any vehicles owned by the decedent to be driven. The liability associated with any accident could potentially become a claim against the estate. All other potential liabilities such as farming operations, business continuation, ongoing construction and similar matters should be discussed and analyzed with the attorney.
Estate debts should not be paid until after the notice to creditors has expired which is three (3) months after the publication of the notice in the newspaper. The North Carolina General Statues dictates the order in which debts should be paid, therefore, the Executor should consult with the attorney before paying any estate bills. Many times, the attorney will maintain funds of the estate in the firm=s general trust account and will pay the estate bills through this account. This assures that the estate debts are paid in the proper order and at the same time allows the attorney to gather the information and documentation necessary for the final accounting with the Clerk of Court.
INCOME AND INHERITANCE OR "DEATH" TAXES
The determination of tax liability is highly technical. The complexities of both income and inheritance or "death" taxes make expert knowledge and experience essential to adequate protection of the estate. Frequent changes in the tax law, on both state and federal level, create increasingly intricate tax issues in estates of all sizes. As mentioned earlier, the Executor will need not only to consult with an experienced estate settlement attorney, but also with a competent accountant.
Federal and State Income Taxes. Regarding the decedent's income before death, the Executor should provide the accountant with copies of the prior three (3) years tax returns in order for the accountant to assess the history of the decedent's tax filings. The final income tax returns and any final settlements with tax authorities will need to be completed in a timely fashion and the expertise of a qualified accountant will be invaluable. Under state and federal laws, the estate is a separate taxpayer, therefore, any taxable income received into the estate is reported on a "fiduciary" or estate income tax return which is normally due four (4) months after the close of the accounting year for the estate.
Estate and Inheritance Taxes. Regarding inheritance or "death" taxes, the attorney and accountant are indispensable. There are many considerations to be made in the preparation of the inheritance estate tax return. The inheritance estate tax return is due nine (9) months from the date of death. This time period is used to perfect the inventory and determine the final valuations to be used on the return. The accountant can advise as to whether to use date of death values or an alternate value which the Internal Revenue Service allows under certain circumstances. Once these return is filed, audited and released, the Executor can proceed with finalizing and formally closing the estate.
FINAL SETTLEMENT OF ESTATE
Generally, the Executor should not distribute any estate assets until such time as the period for creditors to make claims expires and all debts of the estate, including death taxes, have been paid. However, once the Executor understands the estate and the likely claims, he or she can make partial distributions to heirs, retaining a reserve for unanticipated claims and the costs of closing out the estate.
In anticipation of the closure of the estate, there are certain matters that should be reviewed. Basically, the probate process is the process of changing legal title to real and personal property. All credit card, electric, telephone, water and any other account should not remain in the name of the decedent and should be properly terminated or transferred. The same review should be made of all bank, stock, investment and other related accounts. The issue of the necessity of Executor deeds should be discussed with the attorney. All vehicle titles, boat registrations and the like should be properly transferred.
In other words, as the Executor monitors the mail over the period of months of probate, the Executor should begin to take note of the change of legal title. As the estate begins to reach closure, the name of the decedent on any correspondence should be brought to the attention of the attorney.
Finally, after the receipt of tax releases, if any, the Final Accounting is prepared. In order to finalize and formally close the estate, this complete and detailed statement of all acts of the executor is prepared and filed with the Probate Court. The balance of the assets remaining in the hands of the Executor is distributed as directed in the Will. The Clerk of Court audits the accounting and formally closes the estate.
This writing is intended to generally familiarize you with various legal issues and is consistent with North Carolina law. The scope of this document is necessarily limited, and consultation with your attorney should always precede taking any action.