When a person dies (the “decedent”) owning property, or after having created a Trust that holds property at the decedent’s death, there will be an administration of those assets. If the assets were owned by the decedent in his or her own name, those asset will go through Probate, which is a court supervised estate administration. If the assets were held in the decedent’s trust, then the trust assets will need to be administered (a “trust administration”) but the process likely will be simpler because the court usually does not get involved with a trust administration.
Administration of an estate or trust is the process of gathering, managing and distributing a person’s property (the “estate”) after death. The major difference between a North Carolina estate administration versus trust administration is that the estate administration (or Probate) requires reports to the court and is more formal. However, in both situations the person who is in charge of the administration must act carefully or they may be sued for mishandling the estate.
Probate Estate Administration in North Carolina
If the decedent had a Will, that Will is reviewed by the Clerk of Court in North Carolina. Most Clerk’s offices have an Estate’s Division. After the Will is approved, the Clerk of Court appoints someone (generally the person named in the Will) to be the Executor, and to be responsible for administering the decedent’s estate. The Executor must identify and gather the decedent’s assets, until the estate is completed. In the meantime, the Executor must comply with the legal requirements of administering an estate, such as notifying creditors, deciding which bills and debts to pay, and file income tax returns. The Executor also must file on-time the reports with the Clerk of Court that the law requires. Finally, to complete the estate administration, the Executor must divide the remaining assets among the appropriate beneficiaries. This process usually takes about a year, although it could be completed sooner. A more complicated probate estate administration could take years. Some distributions from the estate may be made before the estate is completely administered.
When a family member dies, the survivors’ emotional trauma often is followed by bewilderment and uncertainty about what financial and legal steps are needed. Here are some tips about what needs to be done. The person who has the ultimate responsibility will be whoever is appointed Executor or Personal Representative of the estate. That will be the person or entity named in the decedent’s Will; if there was no Will then the first step will be for the Court to decide who will administer the estate and to appoint an Administrator.
Even before the Executor or Administrator is appointed, it is best to secure tangible property. This means furniture and furnishings, as well as personal items and vehicles. Examples of tangible personal property include silverware, dishes, furniture, jewelry, and artwork. If family members start taking the decedent’s personal property before the Executor can take an inventory, problems may arise.
Another matter that won’t wait for you to start the estate administration, is Social Security may withdraw money that had already been paid into the decedent’s bank account. You should notify Social Security within a month of death. For more on Social Security’s procedures when someone dies, you can visit SSA.gov at http://www.ssa.gov/
When you’re ready, meet with an experienced attorney to start the estate administration. Sometimes a simplified form of estate administration is possible, and the lawyer should discuss that with you. Bring to your meeting as much information as possible about cars, finances, taxes and debts. The law office will work with you to get things organized, so don’t stress about having things perfect. You’ll feel better after you get started.
Procedures for administering a North Carolina estate
Every state’s rules for estate administration are different. In North Carolina, here is what you can expect:
1. File the Will with the Clerk of Court of the decedent’s last county of residence. The person who is named in the Will needs to file an Application with the Clerk’s office, requesting to be appointed as Executor. If there is no Will, one of the family members will apply to be Administrator. The Clerk will decide whether the applicant should be appointed, and then issue Letters to that Executor or Administrator to handle the estate.
2. Gather the estate’s assets. Start by researching what the decedent owned. You need to file a list, known as an “inventory,” with the probate court. Unless its a very small estate, generally you’ll want to consolidate all the estate’s account into one estate checking account. The exception to that would be if the estate is large; in that case, you will want to get professional investment advice. Having one account to use for paying bills and making distributions to beneficiaries (at the appropriate times) will simplify your job by making it easier to track receipts and payments. Your lawyer can help with establishing an estate account. For more involved estate, you may need to determine values for each piece of property, which may require appraisals. Generally personal property is distributed before the money, in accordance with the decedent’s directions.
3. Give creditors notice, pay bills and taxes. You will need to publish a Notice to Creditors in a local newspaper. It will contain a date by which creditors must make claims against the estate. You should wait until after this time passes before you start to pay bills, and even you should wait on paying bills until after you’re sure you’ll have enough money to cover all debts after paying for taxes and the expenses of the estate administration. Be careful! If you pay bills and then run out of money, you’ll have to pay the rest of the bills yourself…from your own funds. You can challenge bills and debts that you do not believe are proper.
4. File income tax returns. You’ll need to file a final income tax return for the decedent. You may also need to file an income tax return for the estate. The estate will need its own tax identification number if sets up an estate checking account, or if there is interest or dividends payable to the estate. Only very sizeable estates need to file estate tax returns under current laws. Generally if the estate has over $5 million of assets, you will need to get advice about estate taxes, and those tax returns are due within nine months of the date of death. If you miss this filing deadline and should have paid estate taxes, you could face penalties and interest. It is possible to get an extension on filing the estate tax return, but you still must pay an estimate of the total taxes that will be due.
5. Distribute property to the beneficiaries under the Will, or heirs if there was no Will. There may be specific gifts given under the Will, which can be paid before the estate is finalized. The Executor also can make interim distributions to the beneficiaries of the residuary estate, but the Executor should retain a reserve for unanticipated claims and the costs of closing out the Estate.
6. File the Inventory and Final Account. The Executor must file an Inventory of the assets in the estate, within 90 days after qualifying as Executor. The Executor must file the final accounting with the Clerk of Court, that shows additional assets and income received since the Inventory, along with payments made to creditors and distributions to the Estate’s beneficiaries. The Executor must also present receipts from beneficiaries, for amounts distributed in accordance with the Will. After the Clerk’s Office approves the Final Account, the Executor will be discharged from further duty or responsibility.
When you’re facing an estate administration, remember to take your time before charging into the estate administration. Usually you’ve got a few weeks or a month to get started. While bills eventually will need to be paid, it’s more important that you and your family take care of final arrangements first, and spend time with family to remember the decedent’s life and to grieve. The financial and court matters can wait a while.
A better idea: how a Living Trust and being organized can help
Having a North Carolina Living Trust can help avoid some of this red tape, delay, and headache. Assets that are in a Living Trust or that are owned jointly with right of survivorship will avoid Probate. But in that case, the Trustee of the Living Trust will have to pay all debts, file tax returns, and distribute the trust property to the proper beneficiaries.
Regardless of whether you have a Living Trust, you can make this process better for your family by keeping good records of your assets and liabilities. Not only will it reduce the amount of work required, the process will go quicker and the legal expenses will be less.