Probate Administation of Decedent's Assets

April 1, 2001
Taken from the W&D Estate Planning Advisory Spring 2001 volume 3/number 2
Although the exact details of the process vary from state to state, with
respect to decedents' estates, virtually all probate systems have
certain features in common. The process will include appointing someone
to be responsible for administering the estate, gathering information
about the decedent's assets and debts, resolving all claims against the
decedent's estate (including death taxes) and ensuring that the correct
beneficiaries receive the estate's assets after all claims have been
resolved.
 
The Application for Probate. Typically, after a person dies the first
step in the probate process is an application to the applicable probate
court. The application will apprise the probate judge of the death and
will propose a fiduciary to be appointed to administer the estate. If
the decedent left a Will, the Will usually will be presented to the
court as part of the initial application. Depending on the
circumstances, an application for probate may be summarily approved or,
if the judge has questions about any of the facts presented in the
application or is concerned that not all interested parties have had an
opportunity to raise concerns about the Will or the application, the
court may hold a hearing on the application.
 
Determining the validity of the Will. If a decedent leaves a Will and
there is no issue as to the validity of the Will, the initial stages of
the probate process will usually go quite smoothly. If, however, there
is any question about the validity of the Will, costly delays may occur.
Will contests are infrequent, but when they occur, the financial and
emotional ramifications can be profound. One hears about cases where a
disinherited heir questions a decedent's mental capacity at the time a
Will was drawn up or claims that someone exercised "undue influence"
over the decedent. But other, more prosaic, grounds for Will contests
can arise. For example, sometimes an individual will fail to update his
or her Will to take into account changed circumstances, such as
after-born children or after-acquired assets or debts. This can lead to
unintended ambiguities in language that was drafted to address different
circumstances. This type of dispute typically does not challenge the
validity of the Will, per se, but rather questions the meaning of
provisions in the Will and seeks to alter how the decedent's assets will
be distributed.
 
Appointing an executor or administrator. Each estate will have a
fiduciary appointed, who will be responsible for the administration of
the estate. If the decedent left a Will, he or she can designate in the
Will a preferred person (or persons) to act as the estate's fiduciary,
and, in the ordinary course, the probate judge will formally appoint
that person. A fiduciary named in a Will is usually referred to as an
executor. If there is no Will or if the person named in the Will is
unable or unwilling to serve as executor, the court will select someone.
A court-selected fiduciary is usually referred to as an administra-tor.
Some states use the term "personal representative" to mean the
executor or administrator, as the case may be. A surviving spouse or
other family member, a friend, an attorney or a bank trust department
may be appointed as administrator. If the court has to appoint an
administor, this will slow down the probate process and will add
administrative expense, because the judge will need to hear evidence on
the appropriateness of various candidates for the job.
 
Marshalling the assets, paying debts and resolving claims. Once an
executor or administrator is appointed, the business of administering
the estate begins. The fiduciary's first task is to collect information
about the decedent's assets and about any claims or debts that were owed
by the decedent at the time of his or her death or that arose as a
result of the decedent's death. The fiduciary is also responsible for
ensuring that funeral expenses are paid and that income tax returns are
filed both for the decedent's final tax year and for the estate as a
separate taxpayer. If there is any dispute about amounts owed by a
decedent, the fiduciary has the initial authority to determine the
validity of any claim (other than tax claims). In many cases, the
largest debt will be the federal estate tax liability. One of the
fiduciary's primary responsibilities is to take steps to ensure that
there are adequate funds available to pay all death taxes when they
become due (usually 6 to 9 months after the date of death).
 
Asset Management. During the probate process, the fiduciary is
responsible for managing the estate's assets. Depending on the
decedent's circumstance immediately prior to death, these management
duties may range from relatively passive activities, such as monitoring
bank and brokerage statements, to active, day-to-day management of an
operating business. All business and investment decisions made by the
fiduciary must be accounted for to the probate court, and are open to
scrutiny and challenge based on accepted fiduciary standards. (See
discussion of fiduciary duties on page four of this Advisory.)
 
Descent and Distribution. After all of the claims against an estate have
been resolved and clearance has been received from the appropriate tax
authorities, the fiduciary will prepare a proposed schedule of
distribution of the estate's assets. If the decedent left a Will, it
will direct the fiduciary as to the ultimate disposition of the assets;
if the decedent did not leave a Will, the applicable state's laws of
intestate succession will direct how the assets are to be distributed.
If the probate court approves the proposed distribution of assets and
the final accounting, the fiduciary will be told to make the
distribution. In due course, the estate will then be closed and the
fiduciary released from any further responsibilities.
 
Continuing trusts. It is not uncommon for a decedent to establish under
the terms of his or her Will a trust for family members or others. These
trusts, called testamentary trusts, will be subject to continuing
probate court oversight, typically in the form of required periodic
accountings. A periodic accounting will usually cover a period of three
to five years and will detail all transactions that occurred with
respect to the trust assets. This allows the court and interested
beneficiaries the opportunity to review the trustee's investments and
other decisions, and address any problems that may arise.