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Probate Procedures and Duties of a Personal Representative
This memorandum outlines the matters to be considered in the administration of a decedent's estate and the obligations one assumes as a personal representative of the estate. A memorandum such as this must be general in nature. Most of what is contained in this memorandum applies to all estates regardless of whether the personal representative is an individual or an institution. However, our primary purpose is to introduce individuals to the process of administering a decedent's estate and to anticipate some of your questions. The following paragraphs might raise further questions. We are available to answer those questions and to provide more detailed advice and any information you may require.
An "executor" is the person designated in a will to administer a decedent's estate. An "administrator" is appointed to administer an estate either when there is no will, when an executor has not been named in a will, or when the person named in the will as executor is unable to act. We refer to "personal representatives" in this memorandum, a term which includes both executors and administrators.
The paragraphs below are numbered consecutively, but are not written in order of importance or chronological sequence. Some of them may not be applicable to your decedent's estate. If you are uncertain as to the applicability of a particular paragraph, please ask us.
What Are Your Duties As A Personal Representative?
In general, your duties are to collect, protect, manage, and control the assets of the estate, pay the debts of the decedent, pay all taxes due from the decedent and the estate, and distribute the balance of the estate according to the will or, if there is no will, in accordance with the laws of intestate succession under the California Probate Code. The law expects you to use care and diligence in carrying out these duties. California law also provides an orderly procedure to accomplish all these steps.
As a personal representative you should do the following:
- Take possession of all the estate's property insofar as practicable. Joint tenancy property, life insurance proceeds and retirement plan benefits (unless payable to the estate) are not included in the property under the jurisdiction of the probate court;
- Collect all dividends, interest and other income, and deposit all such items in an interest-earning estate bank account (or accounts) in your name as personal representative of the decedent's estate until the estate is closed;
- Keep a detailed account of all your receipts and disbursements for the estate; list the date, payor, and amount of each receipt; list the date, payee, nature, and amount of each disbursement;
- File all tax returns and pay all taxes -- we will advise you regarding the tax returns that will be required and when they must be filed; and
- Keep estate property adequately insured.
Without consulting us in advance, you should not do any of the following:
- Sell any property of the estate;
- Give away any estate property;
- Lease estate property;
- Pay or compromise any debts or claims against the estate (including funeral bills and/or expenses of the decedent's last illness);
- Distribute estate property to any beneficiary; or
- Deposit estate funds in your personal account or otherwise commingle estate property with your own.
Before Formal Administration Begins
Technically, the administration of the decedent's estate does not begin until the will, if any, has been admitted to probate by the Superior Court and Letters Testamentary or Letters of Administration have been issued. This can take a couple of months. However, prior to the appointment of a personal representative, the decedent's family, the nominated executor, and/or other concerned persons should take the necessary steps to:
- Determine and carry out the decedent's wishes with respect to funeral, burial, cremation, etc.;
- Locate the original will;
- Maintain the decedent's home;
- Protect the decedent's property;
- Provide for support of the decedent's dependents; and
- Notify the State Director of Health Services (if the decedent was receiving Medi-Cal benefits).
The circumstances of each decedent vary widely, and temporary needs will be met differently in each case. There are usually alternate solutions for special problems and temporary difficulties that may exist during the period between death and the court's appointment of a personal representative. We are available to discuss any such problems or difficulties that may arise and will be happy to provide assistance and guidance.
Issuance of Letters Testamentary or Letters of Administration
Within 30 days after a decedent's death, the person who has custody of his or her will must file it with the County Clerk in the county of the decedent's residence and send a copy to the named executor. If you have possession of the will, we can handle this for you. The probate process starts when the person named as executor or some other interested person files a petition with the Superior Court asking that the will and any codicils (amendments) to the will be admitted to probate as the decedent's will. The petition also asks that the court appoint the person named in the will as executor. When the appointment is made, Letters Testamentary are issued.
If there is no will, the petition for probate asks that the court appoint the petitioner or some other person as administrator of the estate. When the appointment is made, Letters of Administration are issued.
We will prepare the petition for probate for your signature as soon as we have the necessary information.
The document called "Letters Testamentary" or "Letters of Administration" is a certificate issued by the County Clerk evidencing your appointment and authority as personal representative. During the administration of the estate, certified copies of the Letters may be requested by banks, title companies, transfer agents, tax authorities and others. We will obtain certified copies of the Letters for use when they are needed.
Notice to Creditors
The law requires that the personal representative notify all known creditors of the estate that there is a probate. The law also requires publication of a Notice of Petition to Administer Estate. This Notice constitutes notice to all unknown creditors of the decedent to file their claims against the estate. We will arrange for the creditor notice and publication. Creditors have four months following your appointment and the issuance of your Letters within which to file their claims. If a claim is not properly filed within that time, it is ordinarily barred.
You should thoroughly check the decedent's records and personal effects for evidence of creditors. Advise us immediately so that we can send all known or reasonably ascertainable creditors personal notice to file their claims. This is now required by law; known or reasonably ascertainable creditors of the decedent who do not receive personal notice to file their claims do not face the time bar mentioned above.
Payment of Claims
Ordinarily, you may pay a properly approved claim with estate funds without incurring any personal liability. You may also pay any proper bill of the decedent without requiring a formal claim, but you will remain personally liable for such payment until it is approved by the court upon settlement of your accounts. You should consult us before paying any claim or bill.
Inventories and Appraisal
A personal representative is required to prepare a complete inventory of all assets owned by the decedent at the time of his or her death. The inventory is a very important document in the administration of an estate: It is the starting point for almost all the tax returns and for the accounting which must eventually be filed with the court. The assets listed in the inventory plus certain other nonprobate assets (such as life insurance, joint tenancy property, and trust assets) comprise the decedent's estate for death tax purposes.
After all of the estate's assets are listed on the inventory, the personal representative places a value on cash and some other similar items. The inventory is then submitted to the court-appointed probate referee (appraiser) for appraisal of non-cash items. We will discuss with you whether an independent appraisal of any real property or other estate asset should be made.
Although it is the personal representative's obligation to produce the information needed for the inventory, the inventory itself is prepared by us. We will prepare the estate inventory as soon as sufficient information is available.
Estate Bank Accounts
An estate checking account should be opened. Cash and uncashed checks in the possession of the decedent at the time of his or her death, except for cash in savings accounts, should be deposited in the estate checking account. All subsequent receipts should be deposited in the estate checking account and all disbursements should be made by check. Personal representatives should not commingle their own funds with estate funds. Substantial amounts of estate funds should not be kept for any appreciable period in the estate checking account. Instead, funds not required for current expenditures and distributions should be kept in an interest-earning estate savings account.
Records and Accountings
Keeping careful records is an essential part of a personal representative's duties. The record of estate receipts and disbursements will be needed in preparing the accountings required by the probate court. In addition, records will be needed for the preparation of estate and income tax returns. Checking and savings account records and statements supplied by stock brokers, trust company agents, mutual funds, and others provide much of the information needed to prepare accounts and tax returns.
Employer Identification Number
Every estate that is required to file any federal tax return must apply for an employer identification number, which is the estate's tax account number. We or your CPA will obtain such a number for you. This is the tax number that should be used for any estate checking or savings account you open.
Federal and California Estate Tax Return
The United States government levies an estate tax based on the decedent's assets at death. The estate tax is normally paid by the estate, but may be allocated and charged to the beneficiaries of the estate under certain circumstances. A return must be filed for the estate of a decedent if the estate has a "gross value" which exceeds the Estate Tax Exemption amount in the year of the decedent's death. "Gross value" includes the assets in the probate estate (listed on the inventory) and also may include certain assets that are not distributed by the decedent's will, such as life insurance proceeds, jointly-owned property, and assets previously transferred by the decedent in trust or otherwise.
California no longer imposes an inheritance tax. However, there is still a California estate tax, which is equal to the amount of the state death tax credit allowable with respect to property situated in California that is included on the federal estate tax return. The Federal and California estate tax returns are due and the estate tax must be paid nine months after the date of death. You must sign the return as the personal representative.
Gift Tax Return
If the decedent made any gifts in the year prior to his or her death, it may be necessary to file a federal gift tax return. California no longer imposes a gift tax. Please supply us with copies of any gift tax returns filed by the decedent in prior years, as well as any information you have about any recent gifts. It may also be necessary to file delinquent gift tax returns for unreported gifts made by the decedent in prior years.
Decedent's Final Income Tax Return
A final income tax return must be filed for the portion of the year prior to the decedent's death and is due by April 15th of the following year. Extensions of time to prepare such returns can be obtained if necessary.
Estate Income Tax Return
An estate is a separate taxpayer for federal and state income tax purposes. Personal representatives are responsible for filing estate fiduciary income tax returns. You should work with your accountant to complete all required tax returns. If you do not have an accountant with whom you currently work, or if your accountant is not familiar with filing for an estate, we would be happy to recommend an accountant to you.
Expenses of Administration and Compensation of Personal Representative and Attorneys
The expenses of administering estates vary depending on many factors, only one of which is the size of the estate. The expenses of administration may include court fees, certification fees, surety bond premiums, the California probate referee's fees, insurance premiums, expenses of selling assets, and the personal representative's, accountants', and attorneys' compensation. The largest costs are usually the compensation of the personal representative and the attorneys.
Compensation for Ordinary Services of Personal Representative and Attorneys
As personal representative, you are allowed compensation for your services. Unless the will makes special provision for your compensation, the amount of compensation for your "ordinary" services is fixed by California statute and is based on the inventory value of the probate estate and income received during the period of administration. Compensation can be paid only after the court orders payment. Fees for ordinary services are calculated based on the amount of the estate accounted for as follows:
- 4% on the first $100,000 or fraction thereof;
- 3% of the next $100,000 or fraction thereof;
- 2% on the next $800,000 or fraction thereof;
- 1% on the next $9,000,000;
- 1/2% on the next $15,000,000; and
- A reasonable fee on the excess over $25,000,000.
The same schedule is used to determine the compensation paid to attorneys for their "ordinary" services. The "amount of the estate" is the total amount of the appraisal value of the property in the inventory, plus gains over the appraisal value on sales, plus receipts, less losses from the appraisal value on sales, without reductions for encumbrances or other obligations on the estate property. Therefore, fees are based on the fair market value of estate property rather than the equity in the property owned by the decedent.
Compensation for Extraordinary Services of Personal Representative and Attorneys
In addition to the statutory commissions and fees discussed above, the probate court may, in proper instances, authorize payment of additional compensation to the personal representative and/or to the estate's attorneys for extraordinary services rendered in the administration of the estate. There is no prescribed schedule of compensation for such services. The amount in each instance is fixed by the court on the basis of a declaration by the applicant as to the nature and extent of the extraordinary services rendered to the estate.
Waiver of Commissions
Compensation paid to a personal representative is taxable income to him or her. Under some circumstances, a personal representative who is also a beneficiary may benefit by waiving his or her right to receive compensation. We will discuss this option with you at an early state in the estate administration proceedings.
When all debts and taxes have been paid and the estate is ready for final distribution, a final account, report, and petition for final distribution, based on your records of receipts, disbursements, and assets on hand, must be filed with the court. The accounting may be waived by the beneficiaries of the estate. If all is in order, the court will enter an order approving your account and report and order distribution of the remaining estate assets. This normally takes approximately four weeks after the petition for final distribution is filed. We will then help you distribute the assets and obtain the necessary receipts from the beneficiaries.
The foregoing is only a general outline of the more important aspects of the administration of an estate. There will no doubt be additional matters in your decedent's estate, but we can discuss those as they arise. We will attempt to keep you fully informed about each significant step in the administration process.
We hope that administration of the estate can be completed as quickly and efficiently as possible and with a minimum of inconvenience to you. We look forward to assisting you.