Understanding estate administration and probate

Over the course of our lives, we'll all be faced with the death of a loved one — and we may often find ourselves having to deal with the things they leave behind. It can be a difficult time, even for the most well-prepared. So it's important to understand the basics of the estate administration process, including who and where you can turn to for help.

What's an estate?

Everything you own upon your death is generally considered to be part of your "estate." The person who died is called the "decedent." The process of distributing your property at your death is called "estate administration" or "settling an estate," and it may or may not include the "probate" process as well.

Who settles an estate?

If you die with a valid will — what we call "testate" — then the person you name as your "executor" in the will is responsible for settling your estate according to your wishes as stated in the will.

If you don't have a valid will at your death — or "intestate" — then the probate court will name an administrator to carry out these duties. Often, people name a family member or trusted friend or advisor as their executor. In addition, the executor may enlist an attorney, tax professional or other trusted professional to assist with the estate settlement process.

In the end, the primary executor responsibility is for asset distribution of the estate to the "beneficiaries," "heirs" or "legatees." The proper term can depend on individual state laws.

Estate administration versus probate: What's the difference?

Without an orderly legal process to distribute and settle our loved ones' estates, you can imagine the chaos that could ensue.

It's important to have a general understanding of the different ways we can own property, and how that property passes to someone or some entity upon our death.

The American College of Trust and Estate Counsel — ACTEC, provides the following video and transcript for more information on estate administration and probate.^{See note1}

As part of settling an estate, "the executor or personal representative collects the decedent's assets, pays all debts and claims, and distributes the residue of the estate according to the will or the state law intestacy rules (when there is no will)," says the American Bar Association.^{See note1}

What's probate? It's the court-supervised process of proving the validity of a will and distributing property subject to probate under the terms of the will or under individual states' laws when there's no will. In general, probate is only a part of the estate administration process, but it is often mistaken as the term for everything involved in estate administration.

Only the property not owned by contract, legal title or trust is subject to probate. In addition, data from the Health and Retirement End of Life Survey shows that only about 30% of estates where there was a will ended up going through probate. This suggests that many estates are administered, or settled, using "will substitutes," which are the forms of ownership listed in the table.

It's also important to dispel some common myths concerning estate administration and probate:

• "I don't have much, so there's nothing to settle or administer." Just about anyone's estate will need to be settled in some way, but not everyone's estate will require probate.
• "Estate administration and probate are lengthy and expensive." Although estate administration or probate can require some time and expense, a lot can depend on the state, the size and nature of the estate, whether legal documents are in order, and other special circumstances.
• "Probate should be avoided at all costs." Although settling or probating an estate may not be the most fun thing to do, avoiding probate isn't necessarily a good thing. In fact, there can be situations where probate is desirable to make sure proper supervision of the settlement process.

What are some of the steps to settle an estate?

The following steps are intended to help you put together a plan for estate administration, whether you do everything yourself or work with an estate planning attorney or tax professional.

As we've discussed, each estate administration situation can differ significantly, so some steps may not apply to your case. In addition, these steps don't constitute legal advice, and you should always seek appropriate professional counsel as needed.

1. Make funeral arrangements.
2. Obtain a death certificate.
3. Locate the will and other important documents.
4. Identify and secure assets.
5. Determine if probate will be necessary and, if so, open the process.
6. Hire an attorney or other advisors if needed.
7. Apply for federal tax identification, if required.
8. Open a bank account in the name of the estate.
9. Notify agencies like Social Security, Medicare or the Department of Defense.
10. Notify creditors.
11. File any insurance, pension, annuity or other employee benefit claims.
12. Close or transfer accounts, cancel services and subscriptions.
13. Pay the estate's creditors.
14. Check in with probate court as needed.
15. File tax returns and pay taxes.
16. File papers to finalize the estate if required.
17. Distribute assets to beneficiaries.
18. Keep records.
19. Where can I go for assistance?

1. Make funeral arrangements.

Check to see if the decedent had prepaid funeral plans in place. If a military honor guard is desired, be prepared to provide form DD214 - Certificate of Release or Discharge from Active Duty, showing honorable service.

2. Obtain a death certificate.

Usually, the funeral home will order death certificates for you, and it's a good idea to request at least 10, which may be needed as you later contact financial institutions, employers, insurance providers and other agencies.

3. Locate the will and other important documents.

These can include the most recent will, letter of instruction, marriage certificate, Social Security and Medicare cards, divorce documents, military discharge papers like DD214, employer benefits documents and a list of key contacts. If the decedent was preceded in death by their spouse, you may need some of these documents for that spouse as well.

4. Identify and secure assets.

Document and determine the value of all the estate's assets and liabilities, which may include:

• Personal residence or other real estate
• Financial accounts
• Insurance policies
• Retirement accounts
• Annuities or pensions
• Business interests
• Safety deposit box contents
• Intellectual property, digital assets or crypto currency
• Artwork and collectibles
• Other personal property
• Outstanding debts

Get appraisals on higher valued property if necessary. You should also locate any deeds, mortgages, titles, registrations and loan paperwork that are associated with any of the assets. If valuable property is out in the open, it may be a good idea to limit access or to put these items in a secure place for safe keeping.

5. Determine if probate will be necessary and, if so, open the process.

If the estate is subject to probate, you'll need to start proceedings with the local probate court based on the decedent's residence. Note that probate may be necessary in other states as well if the decedent owned property there subject to probate. This is called "ancillary probate."

Find out more about probate from Trust & Will.^{See note1}

6. Hire an attorney or other advisors if needed.

You may want to hire an attorney with experience in estate planning, estate administration, and probate depending on the complexity of the estate and your comfort level and family dynamics. In addition, you can bring in other professionals as needed for help with more complex items like taxes, investments, real estate, businesses, or collectibles.

7. Apply for federal tax identification, if required.

Before the person's death, their taxes would usually be reported at the federal level with IRS Form 1040 for individuals.

But upon their death and until the estate is settled, the estate of the decedent is considered as a separate entity that usually requires a separate federal tax ID or taxpayer identification number (TIN).

This TIN is used to file the tax return for the decedent's estate, IRS Form 1041 — not to be confused with estate tax. That means you may end up filing an individual tax return, Form 1040, and an estate tax return, Form 1041. You'll also need the TIN to open any temporary accounts, as covered below, that are used in the interim process of settling the estate.

8. Open a bank account in the name of the estate.

Often, an administrator may need to open an estate checking account under the estate's TIN to pay bills or make deposits while the estate is being settled. Depending on the circumstances, you may need to obtain court permission.

9. Notify agencies like Social Security, Medicare or the Department of Defense.

The funeral home may notify Social Security of the person's death. But you may need to call the Social Security Administration directly to report a family member's death, as you cannot report the death online. You can find the phone number online here: Social Security Administration.^{See note1}

A good way to determine who else you need to contact is to start with the decedent's bank statements to see where their income is coming from. For example, you should be able to see the amount and source of income from Social Security, military or private pensions, annuities, or other income. You can then notify these sources of the person's death.

10. Notify creditors.

Depending on the state where the decedent lived, you may need to publish a legal notice, usually in the local paper, to notify creditors or other interested parties of the decedent's death.

Depending on the state, you may also be required to mail a notice to each known creditor individually. Individual states' laws can determine how much time creditors may have to file a claim against the estate.

11. File any insurance, pension, annuity or other employee benefit claims.

This could include unpaid salary, life insurance benefits, retirement benefits or pensions. You may need to provide an original death certificate or trust document to companies or the decedent's employers.

If the estate is subject to probate, institutions may request "letters testamentary" issued by the probate court, which show that you're the executor and can carry out specified estate settlement duties.

12. Close or transfer accounts, cancel services and subscriptions.

Examples could include the post office, utility companies, magazines and any other services the decedent received.

13. Pay the estate's creditors.

There may be outstanding bills to pay, such as credit card balances, medical and funeral expenses, and other professional fees for attorneys or others. A surviving spouse may need to determine what debt is theirs alone, what is joint debt and what was the spouse's debt.

14. Check in with probate court as needed.

If the estate is subject to probate, you may need to receive prior approval to spend estate funds or to liquidate property. Also, the probate court may require periodic reporting on estate expenditures.

15. File tax returns and pay taxes.

As mentioned earlier, you may need to file federal and state income tax returns for the deceased individual, usually Form 1040. This return is due at the normal filing date, regardless of when the decedent passed away in the previous year.

A fiduciary income tax return, Form 1041, may be required if the decedent's estate had gross income of $600 or more from the date of death until the end of the accounting period.

In addition, a U.S. estate tax return, Form 706, may be required for very large taxable estates, or if a surviving spouse wishes to elect portability of the decedent's unused exclusion amount.

For detailed tax information for survivors, estate executors and administrators, see IRS Publication 559.^{See note1}

16. File papers to finalize the estate if required.

If the estate is probated, then you may be required to prepare a detailed accounting of all financial transactions related to the estate for court approval. If the estate isn't probated, the same accounting may be needed to present to all beneficiaries of the estate.

17. Distribute assets to beneficiaries.

This includes:

Nonprobate assets. As discussed earlier, assets outside of probate pass automatically to beneficiaries, and it's just a matter of making the physical transfers.

Probate assets. Only after all claims, debts and taxes are paid and the probate process is complete can the remaining assets be distributed to the beneficiaries per the will's instructions and as required by the probate court.

Once the assets from the estate are successfully distributed, the probate court may close the estate and terminate your duties as administrator of executor. It's important to keep in mind that complaints for mismanagement of the estate may still be filed against you for a period of time depending on individual state law.

Note: Possibly the largest asset in an estate is the deceased's home or other real estate. For more detailed information, see our article on selling a loved one's home.

18. Keep records.

It's a good idea to maintain detailed records of all estate transactions and communications with beneficiaries, key contacts, creditors, and the probate court — if required. You should keep tax record for 2 to 7 years, depending on the nature of the return and if you paid any tax or received a refund, according to the IRS.^{See note1}

19. Where can I go for assistance?

Active-duty service members and their dependents as well as retired or disabled service members and their dependents may be eligible to take advantage of no-cost legal assistance. Commonly known as JAG, this service can include estate planning.

To find a general legal services provider within the United States, visit the U.S. Armed Forces Legal Assistance Locator.^{See note1}

The USAA Education Foundation provides an excellent checklist for survivors.

For more education or to find a local attorney who specializes in estate planning, visit the American College of Trust and Estate Counsel.^{See note1}

Whether you want to be in control, have someone help you or get support from an attorney, Trust & Will lets you choose how you engage with the process. Start by visiting Trust & Will.^{See note1}