TRUST & ESTATE PLANNING

Settling an Estate: Knowing What to Do and When to Do It

03.26.2018

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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 Time Line 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.

Months One through Three

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
Most 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 within approximately 30 days 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 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.

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

Cancel Personal Accounts
When appropriate, cancel personal accounts, subscriptions and memberships.

Months Three through Six 

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 Six through Nine 

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

Remove Estate Tax Lien
Before any property or assets can be sold, obtain a release of the federal estate tax lien that the IRS attaches to all real assets. When the IRS discharges the lien, the buyer can take title to the property. By the sixth month, all claims from creditors should be resolved.

Determine Location of Assets and Secure "Date of Death Values"
One of the most challenging responsibilities of the executor’s job is taking an inventory of the entire estate and determining the value of all assets, including investment accounts, business interests, insurance policies, bank deposit boxes and intellectual property (patents, licenses and copyrights). Taking possession of property located outside the United States can be particularly challenging.

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

Months Nine through 12

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.

Federal Estate Tax (Form 706)
Within nine months, prepare and file a federal estate tax return. It usually takes the IRS another six to nine months to process the return. 

State-Level Estate Taxes
Today, many states including Connecticut, Delaware, Massachusetts, Maine and New York, plus the District of Columbia, levy their own estate or inheritance taxes. Rates can be as high as 20%.

Information about Beneficiaries (Form 8971)
Thirty days after filing the federal estate tax return, provide the IRS with information about all beneficiaries and the property they inherited.

Gift and Generation-Skipping Transfer Tax (Form 709)
If necessary, file a generation-skipping transfer (GST) tax return and/or gift tax return. It is often recommended that family members use their GST tax exemption to establish Delaware dynasty trusts that can last in perpetuity, ensuring that distributions to grandchildren and other remote descendants are not subject to any transfer taxes in the future.

Estate and Income Tax (Form 1041)
Estates and irrevocable trusts generally are separate taxpayers. That requires obtaining separate tax ID numbers and filing fiduciary income tax returns. These are specialized returns that require a CPA familiar with the filings.

Final Individual Income Taxes (Form 1040)
The estate or trust have tax returns to file. The executor or successor trustee is also responsible for ensuring the decedent’s final individual returns are filed, and addressing any issues with past filings.

Months 18 through 36

Make final contributions.

  • Secure closing letters from the IRS
  • Pay any remaining expenses
  • Distribute any reserves that were held pending resolution of contingencies
  • Prepare and file the final accounting
  • Make final distributions
  • File petition for discharge of executor responsibilities
We Are Here to Help

Fiduciary Trust draws on 85 year 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 administrators, trust officers, portfolio managers and tax specialists who are accessible and dedicated to personalized service. Many of the relationships we build with the families we serve continue for generations.

This communication is intended solely to provide general information. The information and opinions stated are as of March 26, 2016, and may change without notice. The information and opinions do not represent a complete analysis of every material fact regarding any market, industry, sector or security. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.
IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA institute.

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