Thoughts on Probate and Serving as the Executor of an Estate

 

Probate is the legal process of settling an estate after someone dies. However, it can be avoided in some cases, such as:

•             If the total value of assets in the estate falls below a minimum value as determined by state law or

•             If some or all of the assets will pass directly to the heirs using methods such as joint ownership, beneficiary designations, living trusts, or gifts.

This blog post will highlight ways to avoid probate court. But first, let’s address Probate.

For ease of writing, I will use the term “Executor” to describe the role responsible for settling the estate. The Executor has a fiduciary responsibility to the estate and its beneficiaries. The Executor can also be referred to as the “administrator,” “representative,” “fiduciary,” or sometimes “agent.” If a Trust is involved, it could be a trustee.

If there is a Living Trust, there should also be a Will for anything that the Trust does not cover. However, anything going through the Will is subject to Probate if it reaches the threshold that triggers the Probate process.

Settling an Estate

Typically, a Will names one entity as the Executor, usually an individual, but it could be an organization such as an attorney’s office or the Trust office in a bank. The Will can name a series of executors if the primary Executor is unable or unwilling to serve. There are many tasks involved in settling an estate. The functions of the Executor can be delegated (hired out), but the Executor is still responsible and accountable unless they surrender their role to a successor executor.

Settling an estate can vary significantly in complexity. When a spouse dies, everything can pass directly to the surviving spouse, thus avoiding estate taxes and probate court. The most complex administrative task may be to retitle the cars. On the other hand, serving as the Executor for a family member or friend who does not have a living trust can require significant time and effort. A member of our retirement group noted that the resolution of one estate where he served as the Executor took five years to resolve.

For Estates in Virginia/Fairfax Co., there is a lot of good information online:

• Fairfax County Circuit Court - Probate
• Fairfax County Commissioner of Accounts
• Virginia Courts - Circuit Court Resources

 What follows is a detailed outline of the process of settling an Estate.

Executor/Representative/Fiduciary

1.           Settle Non-Will Obligations of the Estate: The estate must settle outstanding debts and pay for Estate-related expenses before distributing any remaining proceeds to heirs and beneficiaries. If the estate is sizable enough, the Executor may make incremental distributions (with the approval of the Probate Court).

•             Outstanding Debts of the Estate: bills, rents, loans, liens, fines, and judgments can be paid by the Executor.

•             Estate/Inheritance taxes: Federal and State laws address estates and estate taxes. One might have to pay no federal taxes on an inheritance, but some states have inheritance taxes.

•             Expenses to Settle the Estate: Attorney’s Fees, Executor fees, Probate Court Fees, Commissioner of Account fees, Accountant fees, expenses to liquidate assets, etc.

•             Income Taxes: The Executor should file federal and state tax returns for the deceased and each year the estate is active.

•             Estate Taxes: Property taxes may apply if the estate's value exceeds a certain threshold.

•             Business Owner: If the deceased owned a business, settling their estate could be complicated.

2.           Interacting with the Probate Court and Commissioner of Accounts: To become a recognized Executor, a person must file with the Probate Court. This step involves paperwork and some fees. After qualifying, the Executor’s involvement with the probate process will be mainly through the Commissioner of Accounts organization (CoA).

•             The Commissioner of Accounts reviews the Executor's activities, including providing an Initial Inventory of the Estate, obtaining approvals, providing annual reports, and providing a Final Accounting, which closes the estate.

3.           Settling Will-Related Obligations of the Estate: Some portions of the Will can be straightforward for an executor to administer, such as sending bequests to beneficiaries and distributing net proceeds from the estate to heirs and beneficiaries.

•             Notifying heirs and beneficiaries of the death of the person, Liquidating non-liquid assets of the estate, Getting the estate out of any business relationships, and providing timely communication with the beneficiaries and the Court are among the additional tasks.

4.           Managing Estate Assets: The Executor is responsible for managing estate assets as a fiduciary for the estate and its beneficiaries while still trying to settle the estate promptly.

•             Regarding real estate, an executor would probably do well to get advice from a realtor on how much to “fix up” and stage a property before selling it. If estate assets include loans owed to the estate, the Executor should try to collect or liquidate them. Sometimes, a Will may “forgive” loans or be deducted from a share of the inheritance if the loan is to an inheritor.

5.           Scrutiny: The longer it takes to settle an estate, the more likely it will be that some beneficiaries may become impatient with the pace of distribution. Lack of communication might lead some to suspect something unscrupulous is happening with the estate administration.

•             Frequent communication can help avoid misunderstandings. However, one should exercise care when communicating to prevent misunderstandings.

                                                  Some Ways to Avoid Probate

1.           Living Trust/Revocable Living Trust: This method has worked well for many, even when the estate’s assets were below a threshold for paying estate taxes. Other types of Trusts can also avoid Probate.

2.           Joint Ownership (Joint Tenants with Right of Survivorship): JTWROS allows ownership to flow quickly and smoothly. However, it has some drawbacks, including administrative challenges and co-owner risks.

3.           Payable On Death (POD) or Transfer on Death (TOD): These accounts are also ways to avoid Probate, though they have some drawbacks, such as administrative challenges.

4.           Life Insurance: Not only can this avoid Probate, but it can also avoid taxes. However, there are drawbacks, including cost and complexity.

In conclusion, settling an estate and navigating the probate process can be complex and time-consuming. Understanding the various obligations and responsibilities of the Executor and exploring ways to avoid Probate can help streamline the process and ensure the wishes of the deceased are carried out efficiently.