Administering and Distributing Assets
How the assets of the person who died are administered depends on whether he or she left a will or a trust. To administer his or her property, you must meet specific legal requirements. Failing to follow the process can result in personal liability for the Trustee or Executor. We strongly recommend that you consult with an attorney who is experienced in trust and estate administration to advise you on the legal requirements. The attorney should be licensed to practice law in the state where the person was residing at the time of death. At Maverick Wealth Advisors, we have a strong network of attorneys, and we would gladly make an introduction on your behalf.
Revocable Living Trust
A revocable living trust, also simply called a living trust, has become a widely used estate-planning tool, partly for the purpose of avoiding probate, which is further discussed below. A trust is an agreement between a “Grantor,” the person who creates the trust and transfers property into the trust, and a “Trustee,” the person who holds the property and administers it for the benefit of “beneficiaries.” When a Grantor sets up a “revocable living trust” for his or her benefit, he or she typically also serves as the initial trustee. After the Grantor dies, the trust becomes irrevocable, and a named successor steps in to serve as trustee. The successor trustee must hold or distribute the trust property to the named beneficiaries and under the instructions outlined in the trust agreement. The trust administration process occurs privately, for example, without Court involvement or oversight.
What if Property is not in the Trust?
If the person set up a revocable living trust, but his or her property was never transferred into the trust after death, you should consult with an attorney. Depending on the circumstances and state law, such property could potentially be confirmed to be the property of the trust. If not, such property will be subject to probate, as discussed below.
Last Will and Testament
If there is no trust, but the person left a will, the assets of the estate must be administered through “probate.” Probate is the Court process for settling the estate of someone who died. A family member must petition to have the will admitted to the Court and ask for an Executor to be appointed. Once the Executor receives “letters of administration,” he or she must fulfill the legal duties set forth under state law (For example file an inventory of assets, notify creditors, and pay debts and taxes.), and after the administrative tasks are completed, the Executor must distribute the estate property in accordance with the instructions in the will and under the supervision of the Court.
Probate fees can run into the tens of thousands of dollars, depending on state law, and probate can take one to two years to complete. High fees and long delays are two of the reasons why many people decide to set up revocable living trusts—property in a trust generally is exempt from probate.
No Estate Plan
If the person left no trust and no will, he or she is said to have died “intestate.” An intestate estate is subject to probate, too. Under intestacy, the person’s property must be given to whoever is entitled to receive it under state law. Typically, a surviving spouse and descendants are the first in line to inherit. If the person had no surviving spouse and no living descendants, then his or her parents would generally inherit next, and if parents are no longer alive, siblings and their descendants are typically next in line. The specific rules of intestate succession vary by state law.
Small Estate Administration and Spousal Petitions
In some states, there are exceptions to the probate requirement. If your loved one’s estate is a “small estate” as defined under state law, a simpler process may be available to transfer assets to the beneficiaries.
Joint property, such as real property titled in joint tenancy with right of survivorship or joint bank accounts, transfers automatically to the survivor upon the death of either joint owner. The joint property typically is not subject to probate under state law. If you are the surviving owner, you must complete paperwork to remove the owner who has died from the title. For example, for real property, an affidavit of death of joint tenant must be recorded in the County where the property is located. The affidavit removes the name of the person who died from the property and placed it entirely in the name of the surviving owner.
Pay-on-Death Account or a Totten Trust
Pay-on-death (“P.O.D.”) accounts or a Totten trust automatically transfer to the payee upon the death of the owner. Like joint property, these type of accounts bypass probate. You should notify the banks where the person held accounts of his or her death and provide them a copy of the death certificate. The banks will then contact any beneficiaries directly. If you are the beneficiary, the bank will likely ask you to complete forms to transfer the account to your name.
Life Insurance Policies and Retirement Plans
Life insurance proceeds and retirement plans are paid directly to the beneficiaries named in the policies and plans and are not subject to probate. If the person failed to name beneficiaries, however, the life insurance proceeds and retirement plans will have to be paid to the person’s estate, which could trigger a probate. Contact the institutions holding the life insurance policies and retirement plans, and inform them of the person’s death. The institutions will contact the named beneficiaries directly.
These steps and information is just the tip of the iceberg. Closing an estate can be a daunting task and one that can be tough to navigate alone, especially if you do not understand your options. Maverick Wealth Management is here to help get you on course and see you through this process.
*This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.