Posted by Fred Lake

Estate Probate: A Step-by-Step Guide

Estate Probate: A Step-by-Step Guide

Most people have little experience of what happens after the death of a loved one, yet they are appointed as a personal representative or executor to settle the estate. This guide can help you if you are in that position by giving you an overview of the steps required to probate an estate.


Inventory

The first step in probating an inheritance is identifying all of the deceased's estate planning documents and other important documents, even before you are appointed to serve as their representative or executor.

Estate planning documents for the deceased may include a final will and instructions for burial, cremation, funeral, or memorial. They can include a revocable living trust. The original documents should be kept safely until they can be turned over to the estate attorney.

Documents important to the deceased will include information about their possessions, including:

  • Bank and brokerage statements

  • Business documents

  • Car and boat titles

  • Life insurance policies

  • Real estate deeds

  • Stocks and bonds

This inventory will also include data about the deceased's debts, such as credit card bills, mortgages, utility bills, medical bills, funeral bills, and personal loans.

A record should be made of what the deceased owned and owed. It also lists the title of each property: in the individual name of the deceased, in joint names, as a tenant in common, or in trust.

Consider the values of the assets or liabilities that have statements. This information must appear on the returns, along with the return date. In addition, tax returns for the previous three years of the deceased must be set aside as well.

The next move is to meet with an estate attorney to open the probate with the probate court after the deceased's important documents have been analyzed.


Open the probate estate.

When the lawyer in charge of the inventory receives sufficient information to establish the legal documents necessary for opening the inventory, he/she/they will inform the person designated to act as the executor/personal representative of the deceased's will and the beneficiaries mentioned in the will.

The legitimate heirs of the deceased will be invited to review and sign the documents necessary for the opening of the probate estate if there is no last will.

While these documents vary from state to state, or even county to county within the same state, they typically include the following:

  • Petition for probate administration

  • Oath and acceptance by the personal representative/executor

  • Appointment of the resident agent

  • Incorporation, derogations, and consents

  • Request for waiver of the surety bond

  • Order while admitting the desire to probate

  • The order of appointment of the executor/personal representative

  • Order waiving bond

  • Letters of administration / Letters of testaments


Assessment of the deceased's assets 

Once the probate inheritance has been opened in the probate court, the next step in proving the inheritance is to establish the values at the date of death for all of the deceased's assets. This step is crucial because most states require that an inventory of the deceased's property and his or her valuables at the date of death be filed with the trial court within 30 to 90 days of the opening of the probate estate.

All financial institutions in which the deceased's assets are located should be contacted to obtain the values of assets on the date of death. A professional appraiser should appraise assets such as real estate, personal effects (including jewelry, works of art, and collectibles), and private businesses.

The court will only ask for a date of death value for the deceased's property to be included in the property inventory. Suppose the deceased's estate is taxable at the federal or state level. In that case, it will also be necessary to establish the values at the date of death for the deceased's non-pecuniary property. These assets will include those belonging to:

  • Tenants by the entirety 

  • Joint tenants with the right of survivorship

  • Accounts payable in the event of death

  • Transfer of accounts in the event of death

  • Life insurance

  • Retirement accounts, including IRAs and 401(k)

  • Annuities 


Pay the Decedent's Estate Expenses and Final Bills 

When the date of death values have been determined for the deceased's property, the next step in probating the inheritance is to pay the deceased's final bills and commissions under the administration of the property. This is also when the executor will have to consider whether the deceased's assets, such as real estate or businesses, should be sold to raise funds to pay for expenses, debts, and taxes.

It is up to the executor to determine the accounts of the deceased at the time of death. It is up to them to determine if the bills are legitimate and to pay them if they are.

The executor or personal representative will also be responsible for paying day-to-day administrative costs, including utility bills, insurance premiums, attorney fees, accounting fees, and mortgage payments.


Pay taxes

Once the executor or personal representative has paid the final bills and has got the inheritance expenses under control, the next move in probating the inheritance is the payment of any income and death taxes that might be due.

The executor must prepare and file the final federal and state income tax return for the deceased and pay all taxes due immediately. The last federal income tax return, IRS Form 1040, expires April 15 of the year following the deceased's death.

In 2021, businesses and individuals affected by winter storms in Texas, Louisiana, and Oklahoma could delay filing tax returns until June 15, 2021. All others have until May 17, 2021. This extension is a continued response to the COVID pandemic.

The executor or representative must also prepare and file all federal income tax returns (IRS Form 1041) and all state income tax returns if the estate generates income during administration.

The executor or representative will be responsible for preparing and filing the federal income tax return (IRS Form 706) or state or property tax return and paying tax bills if the deceased's estate is subject to state or federal tax purposes.

Some properties may be required to file a federal property tax return, although no property tax is paid. The property value limit required by these filing varies by state. Some states do not tax property but may tax beneficiaries.

The final step in settling the property is distributing what is left over to its beneficiaries after the income tax and property tax issues have been resolved.


Distribute and Terminate

Usually, the first question inheritance recipients ask the executor is, "When will I receive the check of my inheritance?" Unfortunately for beneficiaries, distributing assets to beneficiaries is the last step in estate settling.

The personal representative or executor must ensure that all fees and expenses for the property administration have been paid before any distribution or that sufficient resources have been allocated to pay final invoices and taxes. Otherwise, the executor or representative will have to pay these expenses out of pocket if he/she distributes them to the estate's beneficiaries, but the expenses come later.

The executor should work closely with the attorney and the inventory accountant to plan for sufficient segregation of assets to pay for ongoing inventory costs if inventory management takes longer than a year. Distributions to beneficiaries of assets can be made in stages.


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Fred Lake
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