Probate is an important legal process that administers an estate of an individual who passed away. It includes a number of critical steps before it can conclude, such as identifying estate assets, paying outstanding debts, filing taxes, and ultimately distributing assets to the rightful beneficiaries of the estate. This is a comprehensive guide that discusses closing probate and the final distribution of assets. Whether you’re an Executor, beneficiary, or simply curious, this article will help demystify the process so that you can move forward with insight.
Final distribution of probate assets
When an estate moves through the probate process, it cannot formally close until the final distribution of assets is made. In short, the final distribution describes when probated assets are transferred to the decedent’s beneficiaries. Here, it is helpful to understand the difference between probate assets and non-probate assets. We make this differentiation next, followed by an expanded definition of the final distribution of assets that is required in closing probate.
Examples of probate assets
When an individual passes away, there is a collection of assets and property that make up their estate and are thus subject to the probate process. These are commonly referred to as “probate assets.”
Here are some common examples of assets that make up a probate estate:
Vehicles and automobiles
Art and collectibles
Financial accounts such as checking and savings
Stocks and bonds
Some types of real property*
*When it comes to real estate, the ownership structure is the key to determining whether or not the property must pass through probate. For instance, houses often pass automatically to a joint owner (such as a surviving spouse) outside of the probate process. This largely depends on the type of deed used on the property. Property owned as tenants-in-common are subject to probate as the decedent’s individual share of the property can be passed down to beneficiaries independently of the other property owners.
Examples of non-probate assets
To gain a better understanding of probate assets is to know what they are not. Non-probate assets are assets and property that are excluded from the probate process. They are often assets that transfer automatically to a beneficiary or other upon the owner’s death and thus are not included in the decedent’s probate estate. These are assets or property that are jointly owned, are payable or transferable on death, have a designated beneficiary, or are owned by a Trust.
Here are some common examples:
Accounts or policies with beneficiary designations, such as a 401(k) account or life insurance policy
Assets that are owned by a Trust
Assets that are registered with a Transfer or Payable on Death mechanism
Pension plan funds
Properties with right of survivorship
Wages, salary, or commissions due to the decedent upon death
Property that is distributed automatically to immediate family members by state law
In many cases, it is regarded as advantageous to increase your share of non-probate assets relative to probate assets. This is because when you pass away, you will have more assets and property that can transfer automatically to your loved ones without them having to wait for their final distribution in probate. More on this next.
What is a final distribution in probate?
The final distribution of assets is the final step that wraps up the probate process. In other words, this step must be completed before the probate estate can close. The final distribution is where the Executor or Administrator transfers any remaining probate assets to the estate beneficiaries.
Leading up to this point, the Personal Representative completed the numerous steps of the probate process, such as creating an inventory and valuation of estate assets, providing notice to heirs and creditors, paying debts of the estate, and filing taxes.
The length of probate is determined by how quickly these steps can be completed. In some cases, probate can be drawn out when the estate is particularly complex or when legal suits are filed. There can also be delays caused by the court itself.
All creditors, taxes, and disputes must be settled before the Executor can transfer remaining assets to the heirs and beneficiaries of the Will. Once this is done, the probate estate can be closed.
Informal vs. formal distribution process
Some states make a distinction between an informal and formal distribution process.
An informal distribution process allows the Personal Representative to distribute assets any time during the probate process, as long as they follow the wishes outlined in the Will or intestate succession rules. However, they are urged to wait at least until the creditor claim period concludes for obvious reasons. Once the Personal Representative makes their distributions, they report back to the probate judge to inform them how the assets were distributed.
In contrast, a formal distribution process requires the Personal Representative to propose a distribution plan to the probate judge. The court will review the plan to ensure that it is in line with the Will or intestate succession laws. Upon approval, they will issue a formal order of distribution. Here, the Personal Representative must understand that while they were issued legal authority to act on behalf of the estate, they are not legally authorized to make the final distributions until they receive permission from the court.
Closing probate and final distribution of assets (FAQ)
Here’s what we know so far: the closing of probate takes place when the final distribution of assets is made. Probate assets that make up the deceased person’s estate are distributed to the Will’s beneficiaries and/or the decedent’s heirs. Once this step is complete, then the estate and the probate process can formally close. However, before this can happen, a number of steps must take place, such as settling up with creditors and filing the decedent’s final tax returns.
The following provides further information regarding the final distribution and the closing of the probate process.
When is the final distribution of assets made?
Once all the assets have been gathered, the estate's creditors have been paid, and taxes have been filed, it's finally time for the Executor or Administrator to start making distributions. If there's a Will in place, the Executor will carefully follow its instructions when distributing the assets. Usually, they begin by fulfilling any specific gifts mentioned in the Will and then proceed to distribute the rest of the estate, known as the residuary estate, which includes all the remaining assets. It's important to note that if there's not enough money left after fulfilling the specific gifts, the residuary beneficiaries may not receive anything. On the other hand, if there's no Will, the Administrator will distribute the assets to the heirs of the estate in accordance with state laws.
How are different types of assets handled?
Personal property: When it comes to personal property, it should be distributed either according to the instructions in the Will or, in the case of an Intestate Estate, to the rightful heirs. If the beneficiaries or heirs don't want some or all of the personal property, it's a good idea to consider selling it, if possible, or donating it to a charitable organization. In certain situations, an estate sale might be necessary to clear out the decedent's home from any personal belongings that aren't wanted by family and friends. If the decedent owned valuable artwork, antiques, boats, airplanes, business interests, or other unique assets, it may be necessary to obtain a professional valuation or even auction services.
Real property: Any real property that isn't specifically designated for individuals or organizations should be put up for sale on the market. In cases where real property is being directly given to individuals, an Executor's deed or Administrator's deed must be prepared and executed to facilitate the transfer of ownership. Stocks and investments can be liquidated or, if the beneficiary prefers, directly distributed to them.
Digital property: In this age, estates also likely include digital assets, such as cryptocurrencies or other virtual holdings. These can present unique challenges when it comes to valuation and distribution. For complex assets, it may be necessary to engage the services of specialists to assist with their valuation and transfer.
Who handles the distribution process?
The distribution of estate assets and property are handled personally by the estate Executor or Administrator. This is the Personal Representative who was formally appointed by the probate court who is legally authorized to manage and handle the decedent’s probate estate, including the final distribution of assets.
When can I close probate?
Probate can be closed by the Personal Representative when they have wrapped up all of the required steps, such as paying all debts and taxes of the estate, after the creditor claim filing period has concluded, and final distributions have been made.
The Personal Representative notifies the court that the estate is ready to be wrapped up by filing the closing documents. This action signals that the estate has sufficient funds to settle any remaining obligations.
Each state has its own set of requirements on how the probate process is closed. For example, in California, the Personal Representative must file a petition for final distribution or provide a verified report on the estate's status within one year after receiving the Letters of Administration (or within 18 months if a federal estate tax return is necessary). This time frame ensures that the distribution process moves forward in a timely manner while adhering to the necessary legal procedures.
What if I cannot close probate?
If for any reason the estate cannot be closed within the assigned time frame (referenced above), the Personal Representative has to file a verified report on the estate’s updated status.
This report usually outlines the current status of the estate, along with reasons why it cannot be closed or distributed in time. Common causes include ongoing litigation, estate tax audit, or real property that must be sold to raise cash for estate obligations. This status report is given a hearing in the same manner as any other type of probate petition and all interested parties must be notified.
How do I prepare the petition for final distribution?*
*Note that this petition takes place in the case of formal distributions made by a court authority, so it will not apply to all cases.
The Petition for Final Distribution typically includes three components:
Accounting: A final accounting of estate assets should be provided unless waivers have been signed by all parties who are entitled to a distribution.
Report of Administration: This provides a comprehensive summary of all the actions that were taken by the Personal Representative while they were administering the estate.
Petition: The Petition asks the court to approve the final accounting and the distribution of remaining estate assets.
This Petition for Final Distribution is prepared in a legal pleading format. It should include a title that describes the document. Examples include “First and Final Account and Report of Executor,” or “Petition for Allowance of Statutory Fees and for Final Distribution.”
This Petition is comprehensive, meaning that the Personal Representative should be meticulous in providing all relevant information regarding the administration of the estate, including any actions that were taken. They should also be sure to include any and all remaining property and assets that are to be distributed, as well as the names, addresses, and relationships of each beneficiary who is due to receive property from the estate.
Even if a full accounting has been waived, the petition must still include the list of remaining property that will be distributed, including legal descriptions of any real property.
Get assistance with probate document preparation today
In sum, the Final Distribution of Probate Assets is required when closing probate. The probate court must verify that the Personal Representative properly completed each step of probate, has satisfied any outstanding claims, and that the remaining property may indeed be distributed to the estate’s rightful beneficiaries and heirs.
However, filling out all the required probate documentation (and correctly) is easier said than done. Did you know that Trust & Will’s Probate is a tool you can use to obtain fully complete probate forms and navigate probate with confidence? At Trust & Will, we understand that navigating the probate process can be overwhelming– but we're here to help. Our plans provide clear, county-specific guidance and support from probate experts so you can stay on top of the process. Learn more about our probate offerings.
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