If you are the heir or beneficiary to a decedent’s estate, you have a right to a full accounting of the estate by the executor. This accounting is a requirement of the probate court before the executor or administrator may distribute remaining estate assets to heirs and beneficiaries. If the decedent left a will, those persons, organizations or institutions to whom he left the estate are beneficiaries. If the decedent died intestate, the estate goes to heirs depending on state laws regarding intestate succession.
Estate Account Titling
The executor named in the decedent’s will and officially appointed by the probate court must contact the Internal Revenue Service for an employer identification number for the estate. All of the property titled solely in the decedent’s name must be retitled as “The Estate of …” with the name of the executor. All checks made out to the decedent must be endorsed by the executor and deposited into an estate account. The executor is responsible for managing the decedent’s accounts, any rental properties or other assets of the estate. While the executor makes financial decisions, she may also be personally liable by beneficiaries or creditors for mismanagement of assets. Most states require executors to post a surety bond at the time of appointment for this reason.
The executor’s duties include collecting and safeguarding all probatable assets and establishing the fair market value as of the date of death. The executor must post a notice to creditors in the decedent’s home county newspaper, pay outstanding and ongoing debts out of estate assets, hire professionals such as attorneys and accountants, file the decedent’s final tax return along with any applicable state or federal estate taxes, and pay any taxes due. She must provide the probate court with an inventory of all probatable assets with a copy to the beneficiaries. All of these activities and related costs are part of the estate accounting.
The executor has a fiduciary duty to the estate, and must account for all expenses, as well as managing estate assets. The final accounting to the probate court must include estate checking account statements, invoices, receipts, financial statements, gains or losses on sale of assets, bills of sale and other items applicable to the particular estate. The executor may also receive payment for services, generally a percentage of the estate assets. If the executor is a relative of the decedent as well as a beneficiary, he may choose to waive payment. Depending on the size and nature of the estate, settlement may take months or years. The executor should provide beneficiaries with a regular accounting, and if this does not occur the beneficiaries may file a petition with the probate court to receive this information.
Heirs and beneficiaries must be aware that some assets do not go through probate, and may not be included in the final accounting. These include any assets held under joint ownership with right of survivorship, which now belong to any joint owners. Bank accounts titled “payable on death” or mutual fund or brokerage accounts titled “transferable on death” go to the designated beneficiary, and supersede any provision in a will. The only people who are entitled to see the Estate Accounts are the Residuary Beneficiaries, although there are some exceptions to this rule.
The Executors named in the Will must administer the Estate in accordance with the terms of the Will. If there isn’t a legally valid Will in place, the Personal Representatives who are taking on the role must act in accordance with Intestacy Rules. When the Estate administration is complete, the Personal Representatives should produce a final document detailing the Estate’s Accounts. The Estate Accounts will show the final total of assets, liabilities, fees and administration expenses, and how the balance of the Estate has been distributed. The only people entitled to receive a copy of the Estate Accounts are the Residuary Beneficiaries. A Residuary Beneficiary is someone who is given the remainder of the Estate (known as the Residue) once all the funeral expenses, debts, taxes and other gifts have been paid out. There are different types of gift that can be left in a Will. For example, a Pecuniary Legacy is when an individual is left a specific sum of money. If an individual is bequeathed a Pecuniary Legacy of £1,000 and he/she receives £1,000, he/she would then have no further rights as far as the Estate is concerned. But if an individual is to receive a share of the Estate after the specific bequests have been distributed, then the individual is a Residuary Beneficiary and would be entitled to receive a full account of all of the assets and how they have been distributed.
Exceptions to the Rule
There are some exceptions to this rule. The following also have a right to see the Estate Accounts:
• A beneficiary who is entitled to receive a legacy but their interest cannot be paid in full
• Beneficiaries and creditors whose interests/liabilities cannot be paid in full because the Estate is insolvent
• Parents or guardians of minor beneficiaries
Estate Accounts should contain a complete record of all financial transactions during the administration of an Estate from the date of death through to its conclusion. They do not have to be provided until the Estate has been finalized. There is no specific rule as to the format of Estate Accounts but they would generally consist of a summary of the terms of the Will/Rules of Intestacy, a balance sheet, capital statement, income statement, securities (investments) schedule and a distribution statement. If a beneficiary who is entitled to see the Estate Accounts does not receive a copy from the Personal Representatives upon request once an Estate has been concluded, they may apply to the Probate Registry for an inventory and account order.
Under certain circumstances beneficiaries can compel an estate trustee to pass his/her accounts. The Executor has an absolute duty to maintain proper records and accounts. But he has no legal obligation to pass his accounts. If the beneficiaries approve of the accounts they may release the trustee upon giving their approval. If the beneficiaries refuse, the executor/trustee may voluntarily apply to court for approval of the accounts. There are instances where beneficiaries want to see the records and they, as parties with a financial interest in the estate may apply to court (without notice to the executor) and request that an order requiring the estate trustee to pass accounts. Executors and Trustees are fiduciaries, which means that they owe a duty of care to the beneficiaries of the estate or trust. To confirm that the Executor or Trustee has satisfied his/her duty of care, it is important to provide an accounting at certain times during the administration of the estate or trust.
Usually the Executor or trustee will provide an accounting to the beneficiaries prior to either a partial or final distribution when he/she requests that the beneficiaries execute a Receipt, Release, Refunding, and Waiver Agreement that is designed to protect the Executor or Trustee from liability. Sometimes, however, there are situations when a beneficiary will request that the Executor or Trustee provide an accounting. This may be a formal or informal accounting depending on the request. Regardless, the fiduciary has a responsibility to provide an accounting when requested. It would be preferable to provide an informal accounting. However, sometimes the beneficiary will request a formal judicial accounting, which can be more involved, costly, and subject the fiduciary to a court proceeding.
In certain cases, the Court can even demand an accounting from the fiduciary. This is typically the case when the fiduciary is requesting to resign, when there is a request for the fiduciary to be removed from that role, or when the term of the fiduciary’s role has ended, such as when there is a preliminary executor or temporary administrator.
The executor accounting to beneficiaries is a critical part of the executor’s duties and it must be done properly. It takes place after all expenses and debts have been paid, including income taxes, and before the remainder of the estate are distributed. The executor must give the accounting to all the residual beneficiaries and they must approve it before distribution takes place. It is the executor’s legal duty to be ready to provide accounts at any time. The duty of account is owed to all residuary beneficiaries, the court, and people interested in the estate who get a court order for an accounting. Non-residual beneficiaries who are to receive a specific gift are also entitled to an accounting with respect to the gift. Executor accounting to beneficiaries is expected to take place regularly. At the minimum, it must take place every two years after the date of death and after the most recent accounting. The court has the ability to change the length of reporting intervals.
The executor statement of account should include:
• List of all debts and assets submitted with the application for probate
• List of every cent that went out of and came into the estate, including the date
• Reconciliation of current amount in bank account with everything that went out of and came into the estate
• Amount the executor needs to be repaid for expenses and the amount the executor wants to be paid for a fee, as well as how the executor determined the fee
• How the estate is to be distributed, including beneficiaries’ names, share of estate, and amount of money each is to receive
• Release form for the beneficiaries to sign, which will release the executor from personal liability for all actions taken
Formal and Informal Executor Accounting to Beneficiaries
The Surrogate Rules give a formal accounting procedure that includes financial statements. Those entitled to executor accounting can sign a release that dispenses with the requirement for a formal accounting. If all the beneficiaries sign the release and there are no issues with compensation, a formal accounting is not required. This is referred to as informal accounting. The releases should be filed with the court so they are on the record to protect the executor. If the executor cannot get everyone to sign the release, if compensation needs to be set, or if the executor needs to discharge a bond, he or she can request another form of accounting that is less work and costs the estate less.
Format for Accounting to Beneficiaries
There is no set format for accounting, be it formal or informal. However, it is critical that executors keep detailed records and evidence supporting each transaction. Additionally, it is in the personal representative’s best interest to keep track of how much time is spent for each step, be able to provide evidence of each step taken, and describe instances where he or she has had to use personal discretion. Keeping such information will be useful if the executor’s fee is contested. Once the final accounting has taken place and the estate has been distributed, the court can discharge the executor. However, the executor will always be the executor of that particular estate so if issues arise in future he or she will need to take up the role again. Discharge means that the executor cannot be held personally liable for how the estate was administered, unless fraud or undisclosed acts are discovered in the future.
An executor assumes the legal responsibility to essentially “close the books” on that life and act in the best interest of the estate. Responsibilities include but not limited to:
• Working with creditors.
• Gathering and accounting for assets.
• Filing and paying income taxes as well as estate taxes.
• Distributing assets according to the person’s wishes and the laws in the state in which the deceased person lived.
The executor responsibilities to beneficiaries come with potential legal liabilities if the assets aren’t handled properly. Even when executors follow the Will, they make common mistakes. Below are three of those mistakes, along with tips for how to avoid them.
• Misunderstanding Fiduciary Responsibilities: Once you’ve been appointed the executor of an estate you also become a “fiduciary,” and expectations around your actions are high. As a fiduciary, your responsibility is to manage the money on behalf of the state. This that can get emotionally dicey for everyone, especially if the executor is also an heir or beneficiary.
Unfortunately, being fair and honest when following the Will isn’t enough. You have to be able to prove that all of your actions and motives are transparent, objective, and completely above board. This is where we’ve seen many get tangled up in executor misconduct. As executor, your record keeping must be scrupulous, with paper copies of every transaction. Your communications with beneficiaries should be clear and consistent. That means everything related to the estate and probate should be put in writing and sent to everyone at the same time. Keeping everyone up-to-date on what’s happening with their inheritance can help allay concerns and resentment down the road.
• Mismanaging Real Estate: This is an issue we run into all too frequently. Scammers and flippers make their living combing through death notices and hitting grieving relatives with hard sales pitches. Executors overwhelmed with their grief and the job in front of them are often quick to take the first offer they receive. It doesn’t help when there is little cash in the estate or if the house is in disrepair. As the executor, though, you have a fiduciary duty to make your best effort to receive the “fair market value” of that asset. So, while you do want to move quickly on a house sale you also want to move deliberately to maximize the value of the house. First, you’ll need to have the property appraised for probate court. Then you should talk to a trusted real estate professional about the best way to move forward. For example, if the house has a lot of deferred maintenance, is it better to invest estate assets in repairs before putting it on the market or selling it as is. If the property is to be sold and the proceeds distributed through the estate, the executor decides on the sale price and the amount of the commission. In order to head off questions from the beneficiaries about those numbers, it’s wise to get the blessing of the probate court before signing a contract.
• Not Securing Tangible Assets: Yes, your father willed his valuable coin collection to your brother. But when your father died, the ownership of that collection didn’t immediately transfer to the brother. When the executor follows the Will and probate requirements, the coin collection is the property of the estate until probate is settled. It’s the executor’s responsibility to ensure the safekeeping of the collection until that time. We’ve seen this legal hurdle trip up many executors, especially when multiple family members have keys to the decedent’s house. It’s very common for even well-meaning beneficiaries to come in and help themselves to whatever they were promised. It becomes a huge problem if there are valuable antiques, collections or artwork left unprotected in the house. As an executor, one of the first things you need to do is change the locks of the house and secure anything of value. As part of the required estate accounting, you may need to have valuable items appraised and secured until probate is settled. Only then can they be distributed or sold.
Probate estate executors must prepare accountings to ensure the fair and competent handling of beneficiaries’ inheritances. Accounting forms and preparation formalities vary slightly from state to state; however, they all require the same basic information. An executor must disclose to the beneficiaries all actions he has taken for the estate. Receipts for bill payments and the sale of real estate or other property must be listed. Distributions of money or property made to beneficiaries must specify dollar amounts and identify the property and beneficiaries involved. Essentially, beneficiaries are entitled to detailed, accurate accounting from executors.
Estate Administration Lawyer
When you need legal help with Estate Administration, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
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