Young or old, huge estate or just starting out, recently out of college or planning to retire soon...if you have regular income, any sort of savings, a home, a partner or any dependents, you should have an Estate Plan. But many people think comprehensive plans are just too complicated, and they’re intimidated by all the moving pieces. One way to truly understand what Estate Planning is all about is to first understand the process of estate settlement, or what happens to an estate after the owner dies.
Understanding the process of settling an estate can help you really wrap your mind around all the different components of a comprehensive Estate Plan. So read on, as we cover everything you need to know about what happens after an estate owner passes. In Estate Settlement 101, we’ll look at:
Checklist for Settling an Estate in 9 Easy Steps
The estate settlement process can be long, and it’s often confusing for those going through it for the first time. But when you have a solid checklist, with a timeline that details what to expect and when to expect it, you may find it's actually not as complicated as you first thought.
Especially if you’ve been named Executor, you need to understand the estate settling process so you can ensure that an estate is settled properly and timely and that all heirs receive their share of the estate as intended. Use the following checklist to feel confident you’ve done everything you need, in this order, to properly settle an estate.
Organize important information
Determine need for probate or attorney help
File the Will and notify necessary persons
Take inventory and appraise all assets
Set up a bank account
Pay off any debts
Distribute assets according to deceased person’s Will
Close the estate
1. Organize Important Information
The first step (and one of the most important ones) in the process of settling an estate is getting organized. You’ll want to keep track of both your expenses and all the time you spend working on settling the estate, as you’re entitled to be compensated.
You should look for a Will. You’ll need access to several certified copies of the death certificate. You must notify financial institutions, including the bank, credit card companies and any investment firms. Be sure to inform the Social Security Administration, and know that you’ll need the deceased’s social security number to do so. Try to find a copy of the most current tax return, a birth certificate and any other important documentation.
There are other, practical things to do, too. If you didn’t live with the deceased and there is now an empty property, you should secure it by changing the locks. You want to take a detailed inventory of all his or her belongings. We’ll go more into detail about this below below, but you’re going to need to open a checking account that’s in the estate’s name - you’ll be paying for things like final bills, court costs, potential lawyer’s fees and more from this account.
Once you have these basic documents and tasks done, you should make one master list of contacts that includes all business associates and colleagues, anyone named in the Will, neighbors, friends, relatives and others.
2. Determine Need for Probate or Attorney Help
Depending on the type of Estate Planning that was set up, you may or may not need the help of a lawyer. If an attorney is needed due to dispute, complexity or just for peace of mind, it’s important to remember that the process can become drastically more costly once attorneys are involved. To mitigate some of the cost, some opt to just hire an attorney to coach them along the way. Not sure if you need an attorney? Trust & Will is here for all your Estate Planning needs, including helping you determine if a lawyer is really necessary - reach out with your questions today.
If the deceased only had a Will, it’s likely the estate will have to go through what’s known as probate. What is probate? Probate is the court proceeding that validates a Will. Keep in mind, not all estates will need to go through probate - probate laws can vary significantly depending on what state you’re in and the size of the estate. If there was a Trust set up, or if the estate is very small in value, it may avoid probate all together.
3. File the Will & Notify Necessary Persons
If there is a Will, it must be filed in the probate court. Beneficiaries need to be notified, and if there is a Trust, any successor trustees should also be informed. Other people to notify include: creditors/banks, the post office, the utility companies and any other business the deceased had accounts with.
A smaller detail, but one that will ultimately need to be handled, includes canceling any subscriptions and notifying any agencies that were offering the deceased benefits (i.e. pension plans, etc). The last thing you want to have to be dealing with is returning payments that the estate was not entitled to.
4. Take Inventory & Appraise Assets
Take inventory of all assets to see what needs to be distributed. You may want to have any high value assets appraised so you can determine whether or not the Estate will owe any taxes. Remember that, as executor, it’s your responsibility to take care of the assets (particularly valuable ones) until they are distributed accordingly.
5. Set Up a Bank Account
After you have what’s known as the Letters of Administration (which are granted by the courts and appoint one person or people authority to deal with an estate), you’ll want to set up a bank account. Use this account to collect money that may be owed to the deceased person (i.e. any final wages or insurance benefits). You can (and should) use this money to pay off any debts, lawyer fees, funeral costs or other expenses that come up along the way.
6. Pay Taxes
File any necessary tax returns and ensure taxes are paid. You may need to file the following:
Federal Estate Tax (Form 706)
State-Level Estate Taxes
Gift and Generation-Skipping Transfer Tax (Form 709)
Estate and Income Tax (Form 1041)
Final Individual Income Taxes (Form 1040)
7. Pay Off Any Debts
Even though the person who borrowed and accrued debt is no longer living, most, if not all, of their debts will still need to be paid off. Luckily, the estate (not you personally) will pay the debts, so you don’t have to worry about anything other than figuring out what debts are owed to which companies. Read more about what happens to debt after you die for additional, more detailed information about how to navigate this portion of the estate settlement.
8. Distribute Assets Accordingly
After debts and taxes are paid, and if probate is closed (if the estate needed to go through the probate process), then you can distribute assets according to the deceased party’s final wishes.
9. Close the Estate
Once all the above steps have been thoroughly completed, you can finally file a petition for discharge of executor responsibilities and ask the court to formally close the estate.
Settling an Estate Commonly Asked Questions
Now that we’ve gone through the specific steps of an estate settlement process, and you have both a timeline and a checklist, we’ll look at some of the most common frequently asked questions surrounding estate settlement.
How Long Does an Executor of a Will have to Settle an Estate?
How long an Executor of a Will has to settle an estate greatly depends on several things. Factors include issues such as the state the estate (not the Executor) is in, whether or not the estate had to go through probate, how complex the estate is, how complete and well-done the Estate Plan is, among other things. In short, an Executor generally has as long as he or she needs to settle an estate, provided all statutory deadlines are met.
What is the Real Estate Settlement Procedures Act?
The Real Estate Settlement Procedures Act (RESPA) is a Federal law that dictates how lenders operate and requires borrowers be provided with appropriate disclosures about the costs and nature of the settlement process. It also prohibits things like kickbacks and limits how escrow accounts are used. Because of its name, people often assume that RESPA applies to Estate Planning, but this is a common misconception as the topics are not really associated. However, RESPA does relate to real estate purchases and purchasing a home is one of the main triggering events for needing an Estate Plan.
Do I need an EIN to Settle an Estate?
You need an EIN (Employee ID Number), also known as a Tax ID number, to settle an estate. The EIN is used to file taxes on the estate’s behalf.
How Much Does an Estate have to be Worth to be Probated?
How much an estate must be worth to be probated depends on the state you are in. The baseline number to qualify for a simplified probate can range anywhere from $20,000 to up to $150,000 or more.
Can a House Stay in a Deceased Person’s Name?
A house cannot stay in a deceased person’s name. If the house was co-owned with right of survivorship, the property would automatically go to the surviving partner’s name. If it was co-owned without right of survivorship, the title would then pass as the Will or Estate Plan document states. If the owner dies intestate (without a Will or Trust), state law would come into play.
How to Settle an Estate without a Will?
Knowing how to settle an estate without a Will can be confusing, time-consuming and costly. Yet surprisingly, it’s more common than you may think. When it happens, the resolution of the estate will depend on how big it is, how complex it is and how many heirs claim to have rights to a piece of it. State law comes heavily into play in these cases, and the courts would determine who should be appointed to administer and settle the estate.
It used to be thought that only the very wealthy had what’s known as “an estate,” but the truth is, even if you don’t have a 6 figure savings account or own a mansion, you likely do have an estate you’ll one day leave behind . And when that time comes, whether you’ve prepared for it or not, your estate will need to be settled.
Estate Planning can be complicated or it can be simple. But regardless of how complex an estate is, establishing what happens to it once you pass away is important. Because when the time comes for it to be settled, you want the process to be as efficient and effective as possible. Trust & Will makes every aspect of Estate Planning — including estate settlement — simple, fast, affordable and easy to understand.
Curious if your Estate is protected? Trust & Will can help! Learn more about what we do and how we can protect your family, assets and legacy.