What is estate administration?
Estate administration is the process by which assets of a person who has died (the Decedent) and other financial matters are wrapped up. We all have assets (bank accounts, real estate, investments, etc.) and liabilities (mortgages, loans, credit card and other bills). We are responsible to take care of our own financial affairs and as adults with sufficient mental and physical capacity we each handle those matters. If we need help, a power of attorney designates someone to be able to do these things on our behalf.
What happens when someone dies? Who takes care of the Decedent’s assets, pays the bills, pays the taxes (income and “death” taxes), and transfers the Decedent’s assets to wherever they go at the Decedent’s death? How do we determine where those assets go, who is entitled to them?
The answers to those questions is what is known as estate administration. Very generally, estate administration is the process and the rules by which the financial and legal affairs of a Decedent are handled.
What is the Estate?
There is no one definition of a decedent’s “estate”. It depends on what purpose we are asking that question. In the non-legal and very broad sense, we would consider the estate to be anything of value that the Decedent owned at the time of his/her death.
However, there is also a probate estate, a non-probate estate, and a taxable estate. And the taxable estate will be different depending on what tax we are talking about. So whenever someone says or asks if such and such is a part of the estate, we must know in what context we are working in. Are we preparing a federal estate tax return? A New Jersey inheritance tax return? Are we preparing an estate accounting? The answer to whether something is “part of the estate” depends on first determining what the task is we are trying to complete.
When someone dies and the family calls us we want to determine very quickly whether a decedent had a will and whether it needs to be probated. If the decedent was a client of ours, we will want to go through the client’s existing file. That will give us much of the information we will need to complete the estate administration process.
For example, did we prepare the client’s Last Will? Were there any amendments (codicils) to the will? Are we sure the will we did is the client’s “Last” will? Were there any trusts set up and funded? By us and by previous attorneys?
Once we determine there is a will and who the executor is, the general assumption is that the person named in the will is automatically able to take control of the assets and has authority to do whatever is needed. However, that is not true. The will only expresses the Decedent’s wish that Person X be his executor. But first, the will must be examined and a determination made that it is a valid will under New Jersey law.
The Surrogate (each county has one and is an elected official) is in charge of probate. The term “probate” means to prove. The Surrogate examines the will to determine if it was validly executed (i.e. was witnessed, signed, notarized) in accordance with the laws established by the New Jersey legislature. The Surrogate will also confirm that the executor named in the will is the person applying for the appointment. Once the Surrogate decides the will is valid, Letters Testamentary are issued.
Once the executor is appointed, a Notice of Probate must be sent to each heir, telling them of the appointment and that they can see a copy of the will if they wish.
The executor is the official representative of the estate. Since the estate is not a real person but instead is an entity, it must have someone who can take action on its behalf. That is the executor. If A and B both show up at the bank and claim to be the executor, how does the bank know who is really the executor? It is the appointment by the Surrogate. Along with Letters Testamentary, the Surrogate will provide Short Certificates with the Surrogate’s Office’s seal. The executor gives that to the bank to prove the executor’s appointment.
Note that the certificates are good for 60 days from the date they are issued. If the certificate is stale more can be ordered from the Surrogate’s office. For that reason never order more certificates than you need over the next 2 months. You can always order more later.
Must the will always be probated?
No. Probate is only necessary if we need an executor to do something on behalf of the estate. And there is no deadline to probate. Sometimes the will isn’t probated until months or years later when an asset is discovered and needs to be accessed so an executor becomes necessary.
What is the Probate Estate?
Not all of the decedent’s assets are part of the probate estate. We put assets into 3 categories:
- Contract property – assets that by contract with the financial institution pass to the beneficiaries designated by the decedent while he was alive. Examples are life insurance, retirement accounts and any other accounts that have beneficiary designations (POD or TOD). These assets do not pass by way of the will. They are non-probate. They go directly to the beneficiaries who have been designated. They also are not controlled or accessed by the executor.
- Property that passes by operation of law – joint financial accounts and real estate that are co-owned and held “joint with right of survivorship” (JTWROS) or “tenants by the entirety” pass directly to the surviving co-owner(s). They are non-probate, do not pass thru the estate and so the executor does not have control of these assets. Be aware, however, that just because an asset is co-owned doesn’t meant it is non-probate. Assets can be co-owned and be held as “tenants in common”. The decedent’s percentage of ownership of this type of account is probate property, and passes thru the estate and is accessed and controlled by the executor.
- Everything that does not fall within the first 2 categories is probate property and is the responsibility of the executor. Basically, if an asset is held by the Decedent alone without any co-owner and there is no payable upon death (POD) or transfer on death (TOD) designation on the file with the financial institution, then it is probate property.
What is the executor’s job?
The executor’s responsibility is to gather together all the probate assets (see above), pay all the debts and taxes, if any, and distribute the assets according to the instructions the decedent set out in his will.
How does the executor get access to the assets?
Once the executor gets appointed by the Surrogate, he must transfer the assets from the decedent’s name to the estate’s name. He must set up an estate account. Probate assets are not supposed to go directly from decedent to heir. They should go thru the estate first.
In most cases, the estate will need to open a checking account from which estate bills will be paid. Once the executor is appointed, he will need a tax ID number from the IRS to open an account. We get that number for clients after the Letters Testamentary are issued.
With tax ID number and Short Certificate in hand, the executor can get access to at least ½ of all assets (see discussion on taxes for reason why only 1/2) in the decedent’s name (remember, probate assets only) and transfer them to the estate account.
The executor will also deposit into the estate account all checks (eg. Refund checks) that are issued in the decedent’s or estate’s name.
What happens if there is no will?
When the decedent didn’t leave a will or one can’t be found, the intestacy laws provide what happens to his assets (the probate ones, meaning those that don’t have beneficiary designations and aren’t co-owned with right of survivorship). Every state has intestacy laws. Those laws determine who should be the Administrator (same role as executor, just a different name). The intestacy laws also determine who is entitled to receive them. An application for Letters of Administration (similar to Letters Testamentary) is made to the Surrogate’s office.
Procedures at Surrogate’s Office
Every county has its own Surrogate. The procedures at each office can and do vary. Some counties require the proposed executor or administrator to apply in person. Depending upon the county, this is either done by making an appointment in advance or you can just show up during business hours. In some counties, everything is done by mail. They will then mail back the Letters Testamentary and Short Certificates. The necessary forms can be found on the Surrogate’s website.
The executor must:
- Gather the assets
- Pay the debts
- Pay the taxes
- Distribute what’s left of the assets
As stated above, the executor only gathers what is part of the probate estate. Non-probate assets go directly to the beneficiaries or co-owners. However, the executor is responsible to pay the decedent’s outstanding debts as well as debts incurred after death such as funeral expenses. The executor is also responsible to pay any taxes. That includes income taxes for the last year of the decedent’s life (and any other years which they weren’t filed), federal estate taxes, New Jersey estate taxes (no NJ estate tax if death occurred January 1, 2018 or later), New Jersey inheritance taxes and any other state estate or inheritance taxes, if necessary.
Remember that the definition of estate is different depending on what we are talking about. The taxable estate is different than the probate estate. This means that while the executor is only in charge of probate assets – those that pass thru the probate estate – the executor must determine the value of other assets that are subject to estate or inheritance tax. Each tax has different rules as to what is included and subject to tax what isn’t included.