As the personal representative what kind of things do I need to think about before I settle my friend’s estate?
Estates vary widely, but basically you have to focus on three areas – taxes and administrative expenses, final bills of the decedent and distributions.
Very few estates have to pay federal or South Carolina estate taxes as an individual can currently pass $5.43 million under the exemption provisions before any taxes are due. However, the personal representative is responsible for filing personal income taxes for the decedent and these taxes are due by April 15th of the year after the deceased died.
Look at the bills coming in the mail, payroll deductions and checks written. Were there significant medical bills, student loans, a mortgage, alimony and possible child or an adult dependent care deductions? There may be household or personal care helper salaries that were paid with required employer withholdings and contributions to be handled. Last year’s tax return can be helpful. Sometimes a house and other property is sold by the estate or a credit card debt reduced as part of a settlement which will cause a 1099 to be generated. Sometimes an extension is needed to gather all information, but often a refund is due. If you are claiming a 5% fee for serving as the personal representative, the amount provided by statute, then your work is wages and a 1099 should be generated by the estate to you. I recommend working with an accountant on these tax matters.
Under administrative expenses I include paying any probate fees, the funeral and related bills, legal, accounting and other professional fees to guide and assist you as the personal representative. These items are paid before the residuary of the estate is divided between the beneficiaries.
There may also be ongoing costs for the real property during the administration of the estate, like real property taxes, rent, mortgage payments, insurance and utilities – gas, electric, water, and garbage. There may be sizeable refunds from utility deposits or termination fees under a recent contract for a light pole. Some utility bills can be canceled like the phone, cable, and internet to reduce costs and these become final bills for the decedent.
When we talk about final bills we are talking about medical, credit card, and other bills that are outstanding when your friend died. You are responsible to cancel credit cards, newspaper and magazine subscriptions and ask about refunds, also terminate memberships and life insurance drafts coming out of bank accounts. You need to collect any benefits owed to the estate from life insurance, military benefits, workman’s compensation, last wages from an employer, pension and union benefits, any Social Security benefits owed, investment and required minimum distributions, or a wrongful death action to name a few.
When to deal with personal items mentioned in the will and how to divide, sell and donate is a subject in itself that is best discussed with an attorney knowledgeable on probate law and who has access to the entire picture with all the details, but be aware that items donated to charity and even some assets to be distributed may need to be addressed as part of the tax matters.
Generally you should pay all the bills before distribution happens, unless you are certain nothing is going to pop up and require specific bequeaths to have to be reduced or eliminated altogether. There can be significant advantages to the estate and the beneficiaries if early distribution is possible, again talk with an attorney. And be sure to get receipts and releases for anything you distribute so these executed forms can be filed with the probate court.
Very small estates can be handled by lay persons. The probate court can often help you with the paperwork, but they can’t advise you on the law, prepare a deed of distribution, help when you need to negotiate a settlement of a debt, write a private agreement to alter the distribution directed in the will to keep peace in a family, cure a missing title on a mobile home, or protect a home from a future Medicaid lien. These are just a few of the things an attorney can alert you to. A short consult is money well spent.
Disclaimer: Information contained in this column is meant to be of general information on frequently asked disability, elder law, estate planning and probate law, not specific legal advice to a client. No attorney-client is created by reading this column.