When a close relative or friend passes away, the reality of the loss can be devastating, regardless of the age or medical history of the decedent. Just when you think you're starting to get everything under control again, your attorney mentions something called PROBATE and something called ESTATE TAXES.
What are you going to do? The answer is not as formidable as you may initially believe. Much of the information necessary to prepare an estate tax return is useful when probating the estate through the courts. This short article will give you an overview of the steps of each process in a simple, straightforward manner.
What is Probate? Probate is the legal process by which property owned by a decedent is passed to his or her heirs after the decedent's death. Property which the decedent owned individually must pass through probate for ownership to pass to the heirs. Jointly owned property and the proceeds of life insurance, retirement accounts, and annuities pass to the surviving joint owner or named beneficiaries without the necessity of probate.
A proceeding for probate is commenced by the filing of a Petition for Probate of Will, a Military Affidavit indicating whether or not any of the decedent's heirs are in the military service and a Fiduciary Bond, for the faithful performance of duties by the Executor or Administrator. After the Petition and other documents are filed, along with the filing fee, the Death Certificate, and the Will (if any), the court issues a Citation. This is the court's order to the proposed Executor or Administrator to provide notice to all of the decedent's heirs that a Petition for Probate has been filed and to publish a notice in the newspaper serving the locality in which the decedent lived. The notice states that interested parties who wish to object to the appointment of the Executor or Administrator have an opportunity to do so by filing a notice with the court by a certain date chosen by the court. If no objections are filed, the Executor or Administrator will be appointed.
The first task after appointment is preparation of an Inventory, on the form provided by the court. All of the decedent's individually owned property must be listed at the date of death valuation. The Inventory is signed by the Executor or Administrator and filed with the court. The next step, which can be commenced simultaneously with the preparation of the Inventory, is to determine whether Massachusetts and Federal estate tax returns must be filed. If the decedent's gross estate exceeds certain limits and/or the estate includes real estate situated in Massachusetts, federal and/or Massachusetts estate tax returns may be required.
The information which must be gathered to make this determination and file any required Estate Tax Returns is all of the information listed in the Inventory and in the Will plus the date of death value of the decedent's interest in jointly owned property, the value of life insurance policies, trusts, retirement plans and annuities. If one or both Estate Tax Returns must be filed, additional information will be necessary to take advantage of permissible deductions. Deductions may include funeral expenses, costs of probate, anticipated legal, accounting and Executor/Administrator fees, outstanding debts of decedent, mortgages and liens. If real estate is involved, a copy of the deed and an independent appraisal must also be provided, so that a release of the statutory Massachusetts Estate Tax Lien can be obtained. If this lien is not released sooner, it expires ten years from the date of death. If it is not released or expired, sale or mortgage of the property would be subject to the lien.
Once the Inventory and, if required, estate tax returns are completed and filed, and the claims of creditors have been considered, the Executor may proceed to make partial distributions to the decedent's heirs pursuant to the terms of the Will or, if there is no Will, pursuant to the Massachusetts statute governing the succession of property. Sometimes, this may entail liquidating assets. The Executor has the power to sell personal property without court approval. Real property may only be sold without court approval if it is authorized in the Will.
At all times while administering the estate, the Executor/Administrator must keep detailed records of all income, expenditures, and distributions. These records are necessary for preparation of any fiduciary income tax returns which may be required to be filed and for preparation of accountings to be filed with the court. In many instances, only one accounting must be filed with the court, one year after the appointment of the Executor/Administrator. In some cases, the period of administration of the estate lasts longer than one year. In those cases, annual accountings must be filed, with the first accounting due one year after the appointment of the Executor/Administrator. When the final account is allowed, final distributions as reflected in the account may be made and the estate can be closed.In summary, the general steps are as follows:
1. File Petition, Bond, Military Affidavit, Death Certificate and Will with the court.
2. Mail and publish notice as ordered by the court.
3. File Inventory with the court.
4. Prepare and file applicable estate tax returns.
5. Pay final bills or debts of decedent.
6. Make partial distributions, liquidating assets if necessary.
7. Keep records of all income, expenditures and distributions.
8. Prepare and file annual accounts, as necessary, with the court.
9. Make final distributions.
Although settling an estate involves a significant amount of work, the process can be accomplished one step at a time. If you work with competent legal counsel, it can be even simpler.