Settling an estate: Knowing what to do and when to do it

When a parent or other loved one dies, you might be facing the responsibility of handling their affairs. Things to take care of range from personal tasks, such as notifying family and making funeral arrangements, to legal matters including gathering records and reporting the information to beneficiaries, to handling financial affairs such as distributing assets and paying taxes.

Knowing what to do and when to do it both personally and financially can help prevent you from feeling overwhelmed during such a difficult time.

Professional guidance can help

The executor of an estate may be an individual, such as the decedent’s spouse, child, advisor or other person, or it may be a financial institution such as a trust company or bank. If you are the executor, you can also name a financial institution to serve as co-executor, providing valuable guidance and resources along the way. It’s important to have a clear understanding of the process and remain actively involved.

Key steps and timeline for settling an estate

Estate settlement requires a broad range of skills and carries a long list of responsibilities, from preparing and filing taxes to resolving conflicts among beneficiaries. It also carries significant legal liabilities and requires a commitment of time and energy—it can take as much as two years to settle even the most straightforward estates. Following is a brief outline of what typically should occur and when you or the executor should expect to manage each step.

Months 1 through 3

Review the will and gather documents. Carefully review the will and all trust documents to make sure you have a full understanding of all instructions, terms and conditions. Pay funeral expenses and other debts that require immediate attention and collect documents such as the death certificate, life insurance policies, birth certificates, military discharge papers, marriage certificates and real estate titles. Gather financial records such as bank, brokerage and retirement account statements for the past three years and handle claims submitted by creditors.

• File the will and probate petition

Many states require the executor to file the will in probate court, even if the estate is held in trust and is not required to go through the formal probate process. If necessary, the court schedules a hearing to determine the validity of the will and officially appoint an executor. All interested parties must be notified that the hearing has been scheduled.

• Secure personal property

All personal property, such as homes, boats, furniture, antiques, artwork, clothing, photographs and jewelry as well as personal documents such as journals, diaries and correspondence must be secured and protected. It is important to preserve all items, including items that were promised to a child or relative, until the estate is properly settled.

• Determine location of assets and secure "Date of Death Values"

One of the most crucial responsibilities of the executor is taking an inventory of the entire estate and determining the date of death value of all assets, including investment accounts, business interests, life insurance policies, contents of safe deposit boxes, intellectual property (patents, licenses and copyrights) and personal property.

• Insure valuable assets

After all of the estate’s holdings have been identified and located, consult with insurance specialists to make sure assets are properly insured (vacant homes require special attention because traditional homeowner’s insurance policies often terminate when a home is not occupied).

• Cancel personal accounts

When appropriate, cancel personal accounts, subscriptions and memberships.

Months 3 through 6

• Gather financial assets.

Collect assets in IRA/401(k) accounts, brokerage and savings accounts, as well as financial interests in partnerships or other businesses, and transfer them into the estate account.

• Determine cash needs

Review estate holdings and decide what to sell, if necessary, to raise cash for estate taxes and other expenses.

Months 6 through 9

• Distribute tangible items to beneficiaries

Distribute personal property as directed by the will or trust document. If the executor is given discretion to distribute personal property to beneficiaries, this is an area that requires diplomacy, since surviving family members often have strong emotional attachments to items of sentimental value.

• Remove estate tax lien

Before any real property can be sold, obtain a release of the federal estate tax lien that the IRS automatically attaches to real property upon the death of the owner. When the IRS discharges the lien, the buyer can take title to the property. Note that many states also attach a tax lien to real property for state estate taxes, and this also often needs to be released before the property can be sold or transferred.

• Submit probate inventory

Submit a detailed inventory of all real estate, personal property, bank accounts and debts to probate court.

Months 9 through 15

File taxes and other IRS forms and make partial distributions.

File the estate tax return and make a partial distribution of financial assets to beneficiaries according to the directives of the will. This may mean an outright distribution (transfer of title), or property may be distributed to a trust and distributed over time. Maintain reserves, usually at least 20% of the total value of the estate, to pay the estate’s expenses until it is closed, and to have cash on hand in the case of an estate tax audit, where the final value of assets could potentially increase, resulting in additional estate tax due.

• Federal estate tax (Form 706)

At nine months after the date of death, prepare and file the federal estate tax return (Form 706), if applicable. If the executor is not ready to file the estate tax return at the nine-month mark, the IRS affords an automatic six-month extension of time to file, meaning the federal estate tax return would be due 15 months after date of death. Note that if federal estate tax is due, it must be paid at the nine-month mark, unless the executor can show reasonable cause why the estate is unable to pay all or a portion of the estate tax due.

• State-level estate taxes

Today, many states including Connecticut, Massachusetts, Maine, New York and Rhode Island, plus the District of Columbia, levy their own estate or inheritance taxes. Rates can be as high as 20%. The deadline to file and pay state estate or inheritance taxes varies by state.

• Estate and income tax (Form 1041)

Estates and post-death revocable (irrevocable upon death) trusts are separate taxpaying entities This requires obtaining separate Employer Identification Numbers (EINs) and filing fiduciary income tax returns. These are specialized returns that require a CPA or tax preparer familiar with the filings, as there are several elections available that are unique to estates and trusts.

• Final individual income taxes (Form 1040)

The executor is also responsible for ensuring the decedent’s final personal income tax returns are filed and addressing any issues with past filings.

Months 15 through 48+

Make final distributions.

• Secure closing letters from the IRS and state taxing authorities, if applicable
• Pay any remaining expenses
• Prepare and file the final accounting
• Make final distributions
• File petition for discharge of executor responsibilities, if applicable

We are here to help

Fiduciary Trust International draws on over 90 years of experience in wealth management and estate planning to take the burden of estate settlement off the shoulders of family members, friends and beneficiaries.

Each estate is supported by a dedicated team of experienced estate settlement officers, portfolio managers and tax specialists who are accessible and dedicated to personalized service. Many of the relationships we build with families continue for generations. Our advisors are available to help you and your family manage the estate settlement process to secure the best outcome for your situation.