Plan for the Future

What Does Settling an Estate Mean?

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You may know in the back of your mind that someday you’ll be responsible for settling an estate of a parent, spouse, sibling or other loved one. But what does it mean to be named as an estate executor? What will you be responsible for doing either on your own or with professionals? Here is a general summary of the major responsibilities of the executor:

Pull things together and sort things out before you begin settling an estate.

Settling an estate starts with finding and collecting information about any estate planning documents the deceased persona, referred to as the decedent had. These documents appoint someone to handle the estate, care for minor or disabled dependents, identify estate assets and where they are located. Someone will also need to identify all of the property that will become the decedent’s estate.

Ensure estate fiduciaries have formal authority to act.

A fiduciary is someone the deceased had given power to act on their behalf, Examples include guardians, trustees and powers of attorney. In most cases, estate fiduciaries need to obtain formal authority to act. Typically, the fiduciary will file the applications and supporting documents required by local law with the proper court and then receive letters or orders from the court. The formal grant of authority then allows the estate fiduciaries to demand turnover of the decedent’s assets from third parties and to act on the decedent’s property the same as the decedent could have.

Resolve disputes and settle claims.

If family or friends challenge the decedent’s will or businesses pursue debt the decedent owed them, estate fiduciaries will resolve those issues in probate court, the special court that deals with administering estates. In addition, the estate fiduciaries will decide whether to pursue claims the decedent had against others.

Pay debts.

Any unpaid bills and ongoing contracts will need to be reviewed and either paid, compromised or rejected. If someone with a rejected claim wants to persist in seeking payment, an application may be filed in the probate court and the estate fiduciaries can oppose them. Probate proceedings impose shorter time limits on claimants to file their claims or be barred (i.e., lose the ability to enforce them). These shorter time limits are intended to support the quicker settlement of decedent’s estates.

Pay taxes.

All applicable tax claims must be resolved before the estate is considered “closed.” Tax liabilities can include state or federal tax returns for the last year of the decedent’s life, as well as the decedent’s tax liability for enforceable taxes from prior years. The estate itself might have tax liability for income earned during the period of estate administration.

Some states may also impose a tax on the money or other assets (“inheritance”) people (“beneficiaries”) receive from the estate. This is known as an inheritance tax. Prior to the beneficiary receiving his inheritance, the estate fiduciaries will calculate and deduct the amount of the tax owed from the beneficiary’s inheritance.

Distribute inheritances.

Typically distributions are made after the estate’s taxes, debts and other liabilities are paid. In some instances, distributions include a specific piece of real estate or item of personal property; however, if the distribution is as a share of a common fund the fiduciary may have to sell some assets in order to have enough cash to create the fund.

Account and close the estate.

While estate fiduciaries are performing their financial duties while settling an estate, they will keep ongoing records of their transactions. As the property of the estate and the claims against the estate are resolved, the fiduciaries will need to bring these records together and make a final accounting of everything that was done.

Generally, probate rules require the preparation and filing of such accounting before the estate can be formally closed. Even if not formally required by such rules, estate fiduciaries will likely want to have such an accounting to provide to the estate’s heirs and beneficiaries as evidence that everything was handled properly.

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