Let’s talk probate. At some point in your life, you may find yourself an administrator, a beneficiary or a creditor of a probate estate. You may even want this information for planning your own estate. Listen up.
Administration of a Probate Estate
At its most basic, probate involves assets, debts and distribution. The administration of a probate estate involves the collection of all assets owned by and all claims owing to the decedent, the payment of all debts, liabilities, claims, and expenses owed by the decedent or his estate, and the distribution of the remaining assets to the beneficiaries. If that sounds a bit complicated, then consider this additional factor: the admission of the decedent’s will to probate can be challenged for up to two (2) years from the date it was actually admitted to probate. In other words, everything about the probate administration is unsettled for at least 2 years.
Yikes.
Yes, you think, but you have that covered because you planned to avoid probate. You created beneficiary designations on all of your assets – or perhaps you created a trust and transferred all of your assets into it.
Game over? Hardly. Any creditor can open a probate estate and sue to drag assets back into it. Any disappointed would-be heir can sue and claim you made those designations/transfers when you were incapacitated, unduly influenced or the victim of fraud. In short, it may not be possible to avoid probate. Now let’s get back to the probate itself and the administrator’s responsibility.
Responsibilities of a Probate Administrator
Most lawyers recommend that the administrator handle the estate with the highest level of formality. Scrupulous books, back- up receipts, no hint of self-dealing…. the works. This is crucial if the administrator is going to successfully defend potential claims and avoid potential liability to the ultimate beneficiaries and creditors.
The appointment of a person as administrator, especially if it is an independent administrator without court supervision, comes with both broad powers and high fiduciary duties. A smart administrator will keep the beneficiaries of the estate reasonably informed of the administration, use best efforts to promptly collect the assets, and diligently administer and settle the estate.
The administrator must always be in a position to account for all revenue received, moneys spent and assets sold. An administrator should never commingle the estate property with his or her own funds or business interests.
Never means never. Nothing good will ever come from commingling fiduciary funds.
An administrator should not engage in any self-dealing, such as buying or selling assets, with the probate estate. This is a best practice, but be aware there are a few exceptions if the proper guidelines are followed.
An administrator must obtain a separate taxpayer identification number for the probate estate. Using this number, the administrator should open one or more accounts at a bank or trust company to hold the estate’s cash and investment grade assets. The account should be styled in the administrator’s name, on behalf of the probate estate. Everything in cash should pass through the estate account, and every receipt and disbursement should be documented in detail.
No distributions should be made to beneficiaries until the creditors are paid. No creditors should be paid until the taxes are paid. Taxes are a big part of estate management. The administrator is personally liable if money is paid out to creditors or beneficiaries and not enough is left in the estate to pay the taxes.
There is a lot to estate administration. You need to know about it.
Virginia Hammerle is an attorney with Hammerle Finley Law Firm whose practice includes probate law, estate planning and contested litigation. To receive her newsletter contact her at legaltalktexas@hammerle.com.
