5 basic Stages of Estate Administration

The process of estate administration in broad terms could be boiled down to only three: Gather the assets, pay the taxes and expenses, and distribution.

However, a more exact description of the process is that five stages are involved. They are:

1. Marshall the assets. Find out what assets the decedent had an interest in at the time of his death. There are many ways in which the decedent’s interest could be indicated. For example, his name might have been in joint tenancy with one or more other joint tenants. He may have owned the asset only in his own name. He may have been the beneficiary of assets held in trust. He may have owned an asset that had a named beneficiary, such as a life insurance policy, IRA, or annuity. He may have owned a business that has restrictions on the transferability of shares at his death due to a buy-sell agreement.

Whatever the nature of the decedent’s interest, it must be identified in order to go to the next step.

Call 847-674-0200 for a free consultation.

2. Make the legal determination of all of the factors that determine how the asset should pass at death. It is not as obvious as it may seem at first glance. Assets interact in many ways with respect to how they are titled, how beneficiaries are named, instructions in a will or a living trust.

For example, the will may direct that the assets go to one beneficiary, but if a different person is named as a joint tenant then the surviving joint tenant will prevail against the named beneficiary in the will.

Be careful not to rely on the account statements. The account statement may indicate title in one name but the underlying account agreement commonly known as a "signature card" could say something else. For example, the account agreement could indicate a POD or "Pay on Death" which is a type of beneficiary designation.

Sometimes the law intervenes to send an asset to a beneficiary that the decedent expressly did not want to have it. For example, if a wife leaves her 401(k) plan to her children Federal law will give it to her husband—even if her husband is by remarriage so he is not the father of her children.

3. Explore whether there are advantages to legally altering the distributions. This is an area of the law called “post-mortem estate planning.” There can be enormous benefits with respect to income taxes, estate taxes and even protection from lawsuits.

This comes up more than you would suspect in estate administration. It can be a huge and costly missed opportunity. The estate plan the decedent had in place at death in not the final word. You can often do yourself a great deal of good by slowing down and considering this crucial step in administration.

4. Pay the decedent’s expenses, debts, and taxes. Some of these may be discretionary and can be settled. Don’t just start writing checks.

5. Distribute to the “beneficiaries.” The beneficiaries may be individuals or trusts. If the beneficiaries are minors and no trust has been established for them then accounts need to be established for their benefit by the children’s guardians. In Illinois these are called UTMA accounts (Uniform Transfer to Minors Act).

If the beneficiaries are trusts then tax identification numbers must be obtained. A trust will file an annual tax return called a 1041.

If the beneficiary is receiving government benefits then care must be taken to protect the beneficiary. An outright distribution may disqualify the beneficiary from receiving benefits and even result in confiscation of the inheritance.

Call 847-674-0200 for a free consultation.