Things You Need to Know if You Are Named Executor of a Will or Trustee of an Estate


Overview

Quite often a good friend or a member of your family will have a will or trust drawn up and ask you to act as the executor or trustee. While this may make you feel you have been honored, people feel compelled to accept this office. This situation can also arise when someone has passed away and you must assume duties as executor or administrator of the estate. Quite often people wonder what the extent of their obligations will be and how to fulfill them. This article is intended to provided a very basic overview of the estate administration process dealing with responsibilities regarding the gathering of estate data, payment of debts, expenses, and taxes, and the distribution of the estate in accordance with the provisions left behind by the deceased. This is not intended to provide legal advice. It is hoped however that this information will enable one to understand what it is that they do not know and therefore seek professional advice.

As the personal representative, you are primarily responsible for settling the affairs of the decedent.

  1. Any property that the decedent held jointly with another person, such as a checking account, passed to the surviving joint tenant by operation of law upon the decedent's death. Property that listed a beneficiary, such as the decedent's life insurance contract, also passed automatically at death.
  2. Jointly-held property and property that listed a beneficiary designation are "non-probate" property and passed automatically to you or the designated beneficiary upon the decedent's death.
  3. Any property that was titled solely in the decedent's name is "probate" property and passed in accordance with the terms of the decedent's will.

Terminology. Probate refers to a series of procedures by which a state or county government attempts to ensure that the debts, taxes and expenses of the deceased will be paid and that any remaining assets are distributed to those people that are legally entitled to such assets as heirs or legatees. Probate usually takes place in a Probate Court in the county in which the decedent resided.

The term "executor" means one who performs or carries out some act. For example, a person named by a testator to carry out the provisions in a testator's will.

Administrator is defined as "a person appointed by the court to manage the assets and liabilities of an intestate decedent". This means that the decedent died without a will.

A trustee is one that, having legal title to property, holds it is trust for the benefit of another and has a fiduciary duty to that beneficiary. A successor trustee is a trustee that succeeds an earlier trustee, as provided in the trust agreement.

Fiduciary is defined as "one who owes to another the duties of good faith, trust, confidence, and candor." It is one who must exercise a high standard of care in managing another's property.

Probate Objectives. Having defined probate above, the purpose of post-death probate proceedings is to provide

a judicial forum in which: (1) the rights of an estate's beneficiaries are protected by a court; (2) claims against the decedent's estate are barred if not timely filed; and (3) the right to contest the decedent's will is barred if a will contest is not timely filed.

Non-Probate Assets. Non-probate assets are those types of assets that generally pass to certain persons without the need to seek the assistance of the court. Examples of non-probate assets are as follows:

  1. Trusts;
  2. Pay-on-death accounts (POD);
  3. Transfer-on-death accounts (TOD);
  4. IRA's;
  5. 401(k)'s;
  6. Joint tenancy property;
  7. Life insurance policies;
  8. Land trust agreements;
  9. Annuities; and
  10. Small Estate Affidavit (if less than $50,000 of personal property).

One exception to this broad statement is that if any of the assets described above are payable to the decedent's estate, then probate will be necessary. Thus, it is necessary to make the above assets payable to someone other than the decedent's estate in order to avoid probate.

Probate Assets. Probate assets consist of those assets are subject to the probate court. Generally this means that someone who is deceased and in whose name an asset is titled, this will generally result in probate. More specifically, a decedent's asset that by law is subject to the claims of creditors or legacies. A legacy is a promise in a will or a trust to distribute an asset to a person after the death of the decedent.

Taxable Assets. Taxable assets are those that are determined to be taxable for federal estate tax purposes under the Internal Revenue Code. This is governed by federal tax law and not Illinois property law. Probate assets are determined by Illinois property law. Federally taxable assets are determined by federal tax law. Generally speaking, under the federal tax code, everything you own is taxable for federal estate tax purposes unless excluded under some specific provision of the Internal Revenue Code.

First Meeting With Attorney. The following documents should be gathered prior to the first meeting with the attorney.

  1. Copy of Will (and codicils);
  2. Copies of Death Certificate;
  3. Copy of funeral bill;
  4. Documents concerning previous divorce or separation of decedent, if applicable;
  5. Documents concerning armed services record of decedent, if applicable;
  6. Copies of any will or trust agreement under which the decedent was a beneficiary;
  7. Copies of any will or trust agreement under which the decedent was acting as a fiduciary; and
  8. Copies of any trust agreements created by the decedent.

Opening the Estate. Assuming that probate is necessary, opening the estate consists of preparation of the following types of documentation for the probate court:

  1. Filing the will with the Clerk of the Court;
  2. Petition for Probate of Will and for Letters Testamentary;
  3. Evidence to the effect that the facsimile of the will is a true and correct copy of the will;
  4. Executor's Oath and/or Bond;
  5. Affidavit of Heirship;
  6. Order Admitting Will to Probate and Appointing Personal Representative;
  7. Order Declaring Heirship;
  8. In Cook County, Designation Newspaper in which notices are to be published;
  9. Notice to Heirs and Legatees and Unknown Heirs of Their Rights to Require Formal Proof of Will.

The estate is usually opened by filing the Petition for Probate of the Will with the Clerk of the Court and paying the clerk fees.

Administration of the Estate Once Opened:

  1. Create an inventory of assets;
  2. Gather information;
  3. Establish an estate checking account;
  4. Discuss banking procedures;
  5. Conduct a safety deposit box examination. Have access affidavit prepared beforehand;
  6. Consider ancillary administration and local counsel if property exists outside of the State of Illinois;
  7. Start a claims register and send notice to creditors in the register;
  8. Obtain appraisals of property;
  9. Make necessary tax elections if the estate is taxable;
  10. Establish the surviving spouse's award;
  11. Consider disclaimers (This means considering the fact that somebody may wish not to receive what they are entitled to receive under the estate);
  12. Consider the sale of assets if necessary and consider the usage of auctioneers and brokers;
  13. File SS-4 to obtain FEI number;
  14. File final 1040 and 1041's.

    The decedent's estate is a taxable entity from the date of his death until all estate assets are distributed. The income earned by the property during this period must be reported on Form 1041. Every domestic estate with gross income of $600 or more during a tax year must file a Form 1041. Gross income of an estate includes dividends, interest, rents, royalties, gain from the sale of property and income from businesses, partnerships, trusts, and other sources. If the estate's accounting period is a calendar year, Form 1041 must be filed by April 15th following the end of the tax year. You might want to consult an estate attorney on this matter.

  15. Be aware of capital gain tax savings;
  16. Obtain investment advice.

Closing the Estate.

  1. Consider partial distributions.
  2. Consider the requirement to file a full and complete accounting to all of the beneficiaries.
  3. Obtain an estate tax closing letter, if necessary, from IRS;
  4. Obtain the distributees refunding bonds;
  5. Obtain Final Report of Independent Representative;
  6. Obtain Discharge of the Executor on Delivery of Receipts and Final Report to presiding Judge.
  7. Make final distributions.

Filing of the Estate Tax Form 706 (if assets are more than $650,000)

Form 706 is used to determine the estate tax due on the decedent's taxable estate.

Form 706 must be filed within nine months of the date of death by the Personal Representative for the estate for every US citizen whose gross estate is greater than $650,000 for deaths occurring in 1999.

The decedent's gross estate includes all property in which they had an interest, including:

  1. property held in the decedent's name only;
  2. company and individual entities;
  3. one-half of property held jointly with right of survivorship;
  4. one-half of property held as tenants by the entirety;
  5. life insurance death benefit of policies in which the decedent was owner and insured; and
  6. life insurance cash value of policies in which the decedent was owner and someone else is the insured.

Proceed With the Proper Professional Advice!

If you have not retained an attorney to assist you with the settlement of the decedent's estate, you should consider doing so. An attorney who specializes in estate settlement will be able to assist you with your duties as Personal Representative and explain how to proceed.

Because of the complexity of some tax situations, you should consider hiring a professional to prepare your tax returns.

You should request that someone provide you with some investment planning information.

Again, this article is intended to provided a very basic overview of the estate administration process dealing with responsibilities regarding the gathering of estate data, payment of debts, expenses, and taxes, and the distribution of the estate in accordance with the provisions left behind by the deceased. This is not intended to provide legal advice. It is hoped however that this information will enable one to understand what it is that they do not know and therefore seek professional advice.

REMEMBER, YOU ARE A FIDUCIARY!

This article was prepared by:

Anthony B. Ferraro, Attorney/CPA
The Law Offices of Anthony B. Ferraro
5600 N. River Road, Suite 180
Rosemont, IL 60018
PH(847)292-1220

Mr. Ferraro, both an Attorney and CPA, has been in practice for over 20 years. Mr. Ferraro's law practice is concentrated exclusively in Wills, Trusts, Estate Planning, Estate Taxation, Probate, Estate & Trust Administration, Medicaid and Elder Law.