Estate Planning & Administration

By assuming the duties of an executor you are not only undertaking a centuries-old solemn obligation, but you are committing yourself to fulfill the directions of a person close to you (referred to as the "decedent") who has entrusted you to carry out the decedent’s wishes with respect to the distribution of the assets that he or she has accumulated during lifetime.  Estate administration is not a process to be undertaken lightly or without an informed expectation of what is involved.

The process of “administering” an estate involves much more than what is sometimes called "probate."  Probate in its technical sense refers solely to the judicial acceptance of a decedent's last will and testament and is merely a first step in the administration process.[1]  Estate administration requires a complete gathering up, accounting for, and selling off and/or distributing the holdings of the decedent, and satisfying his or her obligations including the transfer taxes that may be triggered as a result of the decedent’s death.  This will at the very least (and even in the simplest estates) require that you:

• Create an inventory of everything the decedent owned in whole or   part (whether or not that inventory is required to be filed in court),   as well as identify anything else in which the decedent had any arguable economic interest or control, even if not as an owner (e.g.,   as trustee or beneficiary of a trust, leaseholder, etc.).  You will also need to gather information about all of the decedent's lifetime gifts to determine whether or not those gifts affect estate or inheritance tax calculations.
• Value all of the foregoing as of the decedent's date of death based  upon the requirements of the various jurisdictions that might seek to impose inheritance or estate taxes on any of these properties.  For example, the decedent may own real property in a state that is not his or her official state of residence, and that other state may have its own probate requirements and impose its own estate tax obligations.
• n Deal with decedent's "unfinished business" (not only economically,  but sometimes personally).  You may not only be paying the decedent’s last bills and expenses but you also may be required to   have the estate satisfy contractual obligations left by the decedent and put mechanisms in place to deal with ongoing estate business in order to wind down the decedent’s economic matters in an orderly and efficient manner.
• Prudently manage and keep safe all of the decedent's assets until they are properly distributed from the estate.  You may, for example, need to liquidate high-risk investments that the decedent was comfortable with personally, but are unsuitable to be held by a fiduciary.
• Arrange for the ultimate distribution of the estate's assets to its beneficiaries.

While these are significant responsibilities, you may initially be concerned that there are things that must be done immediately after death to get the estate administration underway.  In fact, state law does not permit the immediate probate of a will (and typically a will is not admitted to probate until at least several weeks have elapsed since death).  Fortunately, matters requiring immediate attention are generally limited to:

Making funeral, etc., arrangements and confirming decedent's instructions (if any) respect to same; arranging for the     opening of any safe deposit box if necessary to obtain such instructions and/or to confirm the location of the original will.

• Confirming that all death certificate information is accurate (and ordering death certificates – we typically suggest at least 20).
• Confirming that anyone who was economically or otherwise dependent on the decedent is provided for in the interim period until your appointment as executor or administrator is in place.
• Confirming that any immediately due obligations of the decedent (a looming income tax return filing deadline or a required year-end IRA withdrawal, for example), as well as the funeral bills, can either be held in abeyance or, if necessary,   paid with funds advanced by others, who can be promptly reimbursed once you have access to estate funds.
• Confirming that the decedent's assets are sufficiently secure (including items like household contents, whose "disappearance" can be a flashpoint for estate conflict), as well as adequately cared for pending the inception of the estate  administration.[2]

It is often a good idea to also notify the following relatively soon:

• The Social Security Administration.
• Any payor of a pension or annuity to the decedent.
• Decedent's insurance carriers (auto and property, but it is best to postpone collection of life insurance, as well as any other assets passing outside the will, until the estate's attorneys – i.e., the legal counsel you choose to advise you as fiduciary – are consulted).

Assuming all of the above can be addressed without much difficulty, the first comprehensive meeting with the estate's counsel to start the administration generally does not happen until several weeks after death and after loved ones have had some opportunity to grieve before the "business" of the estate must get underway.

Some very small estates with only liquid assets[3] can be handled relatively simply, assuming there are no other matters of contention.  All other estates will necessarily be more complicated and more time-consuming.

State and federal estate tax filing deadlines are nine months after death.[4]   Extensions can be obtained, as long as the tax is paid at the due date.  It is usually not prudent to file an estate tax return much before its actual due date, since valuable tax planning opportunities can be lost in the event an estate beneficiary dies after the filing but before the due date.

The estate and inheritance tax reporting and payment obligation is one that weighs particularly heavily on you as the personal representative, since you are personally liable to the taxing authorities to the extent you have distributed estate assets to beneficiaries without retaining sufficient assets in the estate to pay all of the finally determined taxes.   And these taxes are not "finally determined" for months after the estate tax return is filed.  In some cases, if the taxing authorities take issue with valuations or other items reported on the return, final resolution of the estate may take years.[5]   Non-tax issues such as lack of marketability of estate assets, potential estate liabilities (for example, residential oil tank issues can complicate what otherwise would have been a simple estate) and beneficiary disputes can cause a very protracted estate administration.

In addition, any estate (including a very small and simple estate) with more than $600 in gross income during the estate’s tax year must file its own separate federal income tax return (and possibly a state income tax return).  That tax year commences on the date of the decedent’s death and runs – at its longest – until the last day of the month previous to the anniversary date of the decedent's death.  For example, the longest permissible tax year of a decedent who dies on June 15, 2012, would end on May 31, 2013.  If beneficial for income tax purposes, you can also choose a shorter tax year ending on the last day of any month between June 15, 2012, and May 31, 2013.  Bear in mind that estate income tax returns may need to be filed for multiple years, since it is rare to conclude any but the simplest estate in less than a year.

Not only are you responsible to the taxing authorities, but you are also accountable to any and all estate beneficiaries and other interested parties (including creditors of the decedent and the state Attorney General if the will includes charitable beneficiaries) for every act undertaken and any necessary action that was neglected.  In short, you must run the estate and its records in a very business-like fashion, documenting every receipt, disbursement, or disposition (or conversion) of any estate asset.   Essentially, even in the simplest estate, as the personal representative you are running a business, but subject to the highest level of accountability for your "performance" – a performance that must be fair to each of the beneficiaries and that must at all times reflect your unquestioned loyalty to the estate.

A significant portion of what you are expected to do as a personal representative can only be done prudently with the assistance of professionals who regularly deal with the administration of estates.  For example, it is generally imprudent for anyone (even a lawyer or accountant) who does not regularly prepare estate tax returns to attempt to do so.  Therefore, you should give careful consideration to the members of your estate administration team.  For example, in addition to a knowledgeable accountant and your chosen estate attorney, it might be appropriate to add a professional investment advisor (to whom you might even wish to delegate investment authority).  As a matter of state law, the necessary cost of engaging those professionals to assist you is a proper (and deductible) estate expense.

You also have a responsibility to inform the beneficiaries named in the will that the will has been accepted for probate and to confirm that notification in a court filing.  Most beneficiaries will be inquisitive and sometimes unjustifiably impatient.  You will need to deal with the flow of information to the beneficiaries and with the thoughtful management of their expectations, and a prudent amount of transparency regarding your actions may be appropriate.

In some cases, the magnitude of all of these responsibilities may be such that the decedent will have selected a professional fiduciary, like a bank or trust company, to act along with you as personal representative.  That can be the preferred alternative when a lay person acting alone, even with the help of able legal and other counsel, would be overburdened in performing the required tasks at the necessary high standard of care.  Even if you are named the sole personal representative, you may nevertheless want to consider engaging a bank or trust company to provide fiduciary advisory services to the estate.

Acting as a personal representative is a job, and one not to be taken on without a dedication to expending the necessary required effort.  Because of the effort necessary and the burdens imposed on you, state law generally provides a mechanism to compensate you by way of commissions payable from the estate, if you choose to take them.  (If you are also a beneficiary of the estate, you might choose not to take commissions, since commissions will be taxable income to you, while bequests from the estate are not.)

Assuming all taxes, debts, expenses, etc., have been paid, your job is not complete until all of the estate's assets have been distributed and all the beneficiaries (or a court, if all the beneficiaries do not agree) have completely released you from responsibility for everything that has been done during the course of the estate's administration.

Finally, after the estate administration is complete, you may be wearing a new hat as "trustee" of one or more trusts under the will.  We would encourage you to review our "Trustees and Their Duties" handout, which can be obtained upon request.

The administration of an estate is an undertaking that can, at least initially, seem overwhelming to any individual personal representative.  The duties can be vast, long-term, and at some peril to you both economically and emotionally.  The job of a personal representative is not to be undertaken lightly or without the appropriate assistance of professional advisors who can help ensure a thoughtful, deliberate, and proper administration.

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[1]The person appointed in a probated will to handle the estate is an "executor."  If there is no will and state law controls the disposition of the estate (an "intestacy"), the person appointed to handle the estate is called an "administrator".  For convenience, we will refer to both an executor and an administrator as the "personal representative" of the estate.

[2]As a general rule, actions undertaken by an executor prior to appointment are ratified retroactively once appointment occurs.

[3]Assuming in New Jersey (i) that the gross value is less than $675,000 taking into account all assets potentially subject to tax, and (ii) that everything passes outright and exclusively to spouse, or direct ancestors or descendants.

[4]Eight months in the case of the New Jersey inheritance tax, which applies in the case of any transfer in excess of $500 to a person who is not a spouse or a direct descendant/ancestor.

[5]Note that New Jersey does not typically permit more than half of the estate's assets to be distributed until New Jersey estate and inheritance taxes are confirmed by the State to have been paid in full.