When a loved one passes on, the last thing on your mind is how to account for their assets and report your findings to the government. You need space to grieve and seek closure, but unfortunately, the law requires that a final accounting be done within a short period of time. This process can take one of two paths—probate or trust administration—depending upon the type of estate planning documents that were secured in advance. Here is what you should know regarding both scenarios.
Probate is carried out to verify the validity of the decedent's last will and testament, or to aid in the distribution of assets in the event that no estate planning documents are present. Probate is conducted in your state’s probate court and can take anywhere from months to years to fully complete. In order to conclude the process, several key actions must be taken.
The first step of probate is validation of the will. A petition must be filed at the probate court in the deceased person’s last county of residence. At this time, the court will verify the validity of the will given that a copy of the will and the decedent's death certificate are provided. Next, an executor must be appointed. The executor is the person who will gather and guard the decedent's assets, pay debts and taxes, and distribute assets following the terms of his or her will. Following the appointment of an executor is the inventory of the estate. At this time, all assets must be appraised to determine the estate’s total value. Debts and taxes must then be paid before asset distribution may occur. However, it is important to note that estate taxes are not required if the decedent resided in the state of California. Once all other matters have been attended to, the decedent's beneficiaries may receive their inheritances as designated by the will.
Trust administration involves many of the same steps as probate but is typically cheaper, quicker and less work simply because there is less involvement with the courts and the state. Therefore, it is also offers more privacy. Still, there are key steps that must be carried out to ensure all loose ends are tied.
Just as in probate, all assets must be appraised to determine their value at the beginning of trust administration. Next, taxes must be paid on the estate if the decedent resided in a state that requires them. In some cases, you may be advised to submit a 706 estate tax form to the IRS. You then must wait to distribute assets to beneficiaries until the IRS has sent a closing letter stating their acceptance of the 706 form. After all previous steps are completed, assets may then be distributed according to the trust.