Estate Administration: A Comprehensive Guide

Estate administration refers to managing and distributing a person’s assets and liabilities after death. An executor or administrator is responsible for ensuring that the deceased person’s wishes, as outlined in their will or according to the laws of intestacy if there is no will, are followed. 

Critical steps in estate administration may include: 

• Probate: This is the legal process by which a court validates a will and authorizes the executor to distribute the assets according to the terms of the will. If there is no will, the court will appoint an administrator to distribute the assets according to intestacy laws. 
• Identifying Assets and Liabilities: The executor or administrator must inventory the deceased person’s assets and liabilities. This may include real estate, bank accounts, investments, personal belongings, debts, etc. 
• Paying Debts and Taxes: Before distributing assets to heirs or beneficiaries, the estate administrator must settle any outstanding debts and taxes the deceased person owes. This can involve notifying creditors, selling assets if necessary, and paying applicable taxes. 
• Distributing Assets: Once all debts and taxes are paid, the remaining assets can be distributed to the heirs or beneficiaries according to the terms of the will or the laws of intestacy. 
• Closing the Estate: After completing all the tasks, the estate administrator can petition the court to close the estate. This involves submitting a final accounting of the estate’s assets, debts, and distributions. 

At Brighton Jones, we understand the importance of offering support, resources, and guidance during this difficult time. The key is to get organized. You must navigate a sea of documents, contacts, and responsibilities as an executor or personal representative.

Here are the steps we recommend taking: 

#1 Reach out to relevant contacts

When managing a decedent’s estate, the responsibility of collecting crucial documents and assessing the estate’s extent falls upon the authorized individual, such as the personal representative, executor, or successor trustee. Begin by reaching out to key contacts, including attorneys, CPAs, and those involved in guardianship or conservatorship. Contact the decedent’s attorney to obtain estate planning documents and seek authorization. Connect with the CPA or tax preparer for financial information. Notify individuals under the Power of Attorney, guardianship, and conservatorship of the decedent’s death.  

Consider contacting various entities, such as the Social Security Administration, Department of Veterans Affairs, employers, banks, trustees, investment professionals, and insurance agents, to address benefits, accounts, insurance, and services. This comprehensive outreach ensures a thorough handling of the estate. 

Additionally, consider the following: 

• Department of Motor Vehicles. To determine what forms may be necessary to transfer titles to vehicles. 
• Credit Card Companies. To cancel credit cards held by the decedent individually. If a credit card is owned jointly with a spouse, the company may discontinue the credit card and require the spouse to open a new account. Also, to determine if there was credit card insurance that may pay for the outstanding balance, if any, or if there was an additional life insurance benefit. 
• Credit Reporting Agencies. To place a “deceased alert” to help prevent identity theft of the decedent. 
• Utility Companies. To alter or discontinue service. 
• Newspaper/Magazines/Other Subscription Services. To alter or discontinue service. 
• Doctors. To notify them of the decedent’s death and determine what medical bills are due, if any. 
• Clubs/Business Organizations. To request a refund of prepaid dues. 

#2 Collect the right documents

Efficient administration of the decedent’s estate requires comprehensive information about their estate plan, debts, and assets. Key documents and items to collect include: 

• Final Instructions: Look for instructions the decedent may have left regarding the location of important documents, often found in sealed letters or formal papers. 
• Will: Obtain signed or unsigned copies of the will, which may indicate the law firm for legal assistance. 
• Trust Documents: Collect any trust documents naming the decedent as a settlor, beneficiary, or Trustee. 
• Funeral/Burial Plans: Check for prepaid arrangements. 
• Safe Deposit Box: If applicable, obtain the rental agreement and keys, as they may contain valuable items and related documents.
• Insurance Policies: Gather life, health, medical, property, or casualty insurance policies. 
• Unopened Mail: Retrieve important correspondence, checks, or bills. 
• Deeds and Titles: Collect property-related documents, including deeds, mortgage papers, vehicle registration, stock certificates, etc. 
• Personal Documents: Gather Social Security cards, birth certificates, marriage licenses, military discharge papers, and other personal records. 
• Financial Documents: Include business statements, bank records, pension and retirement statements, tax returns (up to six years), and gift tax returns. 
• Unpaid Bills: Retrieve outstanding invoices, including medical and credit card bills. 
• Computer Accounts: Review online accounts stored on computers, hard drives, USB flash drives, and CDs, checking for usernames and passwords. 

Additional considerations: 

• Digital Assets: Explore active online accounts like PayPal, eBay, or Amazon. 
• Email, Facebook, and Other Accounts:  Address closure of any existing accounts. 
• Unclaimed Property: Search for unclaimed property reported to the State of Washington at https://ucp.dor.wa.gov/aboutUCP.aspx. 

#3 Identify insurance companies

Life insurance death benefits may represent a significant portion of the decedent’s estate. It is important that estate administration identifies any existing insurance policies and notifies the insurance companies of the death. 

Locate and safeguard all life insurance policies or any other indications of life insurance policies, such as premium notices. Do not discard any official documents, especially insurance policies that have lapsed. Even if a policy owner had ceased paying premiums, a life insurance policy may have been kept in force by some arrangements stated in the policy 

Review policies thoroughly, including the original application, to identify prior coverage. Don’t overlook potential death benefits in disability income contracts or “Voluntary Life Insurance” from employers.  

#4 Apply for Social Security benefits

The decedent may be eligible for Social Security benefits if they worked, paid Social Security taxes, and earned sufficient credits. To determine eligibility, contact the local Social Security Administration office or call (800) 772-1213. If eligible, there are two types of benefits: 

• Death Benefit: This benefit covers burial expenses. To apply, complete the necessary form at the local Social Security Administration office or ask the funeral director to handle the application and apply the payment directly to the funeral bill. Eligible recipients include spouses or children entitled to survivor’s benefits. 
• Survivor’s Benefits for Spouse and Children: 
  • Spouses aged 60 or older are eligible, with reduced benefits if claimed before age 65. 
  • Disabled widows aged 50 or older qualify for benefits. 
  • Spouses under 60 caring for dependent or disabled children may be eligible. 
  • Children under 18 or those with disabilities may also be entitled to benefits. 

#5 Contact an accountant to discuss tax filing requirements

Income taxes

Upon a person’s death, final individual income tax returns may be necessary for the year of death, covering income received from the beginning of the year until the date of death. Both federal and state income taxes, if applicable, are the responsibility of the estate, with taxes due on April 15 following the year of death. A surviving spouse can file a joint return with the deceased spouse, even if the latter lived only one day of the year, provided the surviving spouse has not remarried during that year. 

A federal fiduciary income tax return, Form 1041, may be required for each year the estate is open, reporting income from probate assets. The estate is eligible for deductions against income for administrative expenses not claimed on the estate tax return (Form 706). The estate may have a different tax year from the calendar year, and for the first two years, quarterly estimated income tax payments are not mandatory. 

If the decedent had a living trust, it becomes irrevocable at their death, potentially requiring an income tax filing for trust assets. The Trustee may choose to combine tax reporting with probate assets. Income in respect of a decedent (IRD) refers to income the decedent was entitled to but hadn’t received before death, such as unpaid salary, annuity interest, retirement plan distributions, and accrued bond interest. The inheritor should report and pay income tax on this income when they receive the property. 

Federal estate tax

The U.S. government imposes the federal estate tax based on the value of a deceased person’s estate. The estate includes all property in which the decedent had an interest at the time of death, valued at fair market value. Appraisals are required to determine the value of different types of property. The estate tax return is generally filed if the total estate value exceeds the federal exemption amount of $12.92 million in 2023. 

Life insurance proceeds are included in the estate unless ownership was transferred more than three years before death or was held by someone other than the decedent. The tax applies regardless of how the property passes through a will, intestacy, community property agreement, or joint tenancy. 

Certain deductions, such as liabilities and expenses, can be taken against the property’s value. The estate tax rate is 40 percent for estates with a net value of $12.92 million. No estate tax is owed on property left to a surviving spouse who is a U.S. citizen. If due, the estate tax must be paid within nine months of death, with a possible six-month extension for filing the return. 

Even if no taxes are payable, the assets the decedent owns receive a new cost basis for capital gains tax purposes, usually set at fair market value on the date of death. This can impact capital gains on assets sold after the decedent’s death. 

Estate administration involves navigating the responsibilities of managing a loved one’s legacy. Brighton Jones aims to balance empathy and expertise, guiding a thoughtful and organized approach in estate administration.