Probate can seem daunting, long to complete, and complicated. With the right guidance, the process can go much more smoothly. Having an attorney in your corner can simplify matters and avoid unnecessary delays. This quick overview can make sense of starting to settle a loved one’s estate.
Finding the Will & Collecting Documents
After obtaining original death certificates for the deceased, the next stage will require a thorough walkthrough of the deceased’s residence to track down personal papers, most importantly the will. Ideally, the deceased had the original will in their possession, since a photocopy requires additional consents from beneficiaries before submitting it to the probate court. The will identifies how the estate is distributed, and specifies who will serve as the personal representative of the estate, who has the authority to control and manage the estate’s assets. It will also be helpful to collect the decedent’s most recent income tax returns, any deeds for their real estate, and account statements to gain a clearer picture of the assets they owned. If there are any bills in their mail, it will be useful to collect them and identify any potential creditors. This is especially important, since creditors in Maryland generally have six months from the date of death to preserve their claims against the estate.
Inventorying the Deceased’s Assets
Accurately valuing the deceased’s assets has significant implications for estate administration. Probate courts generally require reporting the value of the assets as of the date of death. To this end, appraisals will need to be prepared for more illiquid assets, including real estate, collectible items, and private business interests. Marylanders have 90 days from the opening of the estate to prepare an inventory of those assets. It will be critical to establish contact with the decedent’s financial institutions to obtain account statements stating the date of death value, and ensure the timely filing of the inventory.
Paying Debts and Distributing to Beneficiaries
Careful consideration must be given to any claims filed by creditors. The executor of the estate has the discretion to disallow creditor claims. Disallowance, however, is the opening stage of litigation over the validity of the claim. The personal representative of the estate should weigh the benefit of preserving estate assets against the costs of litigation. Valid claims should be paid before distributions to beneficiaries, otherwise liability for unpaid debts can follow the beneficiaries, or the creditor may resort to suing the executor personally.
Distributing assets to beneficiaries should be made after paying creditor claims and expenses of administration. Proper calculation of each beneficiary’s distribution requires taking into account any inheritance tax due, if applicable. Maryland imposes a 10% inheritance tax on any such distribution, though distributions to most family members of the deceased are exempt.
Taxes
Estates have income tax obligations like living persons. Income collected by the estate during administration must be reported on IRS Form 1041. The date of death value of assets in the inventory now prove useful, since a decedent’s assets receive a cost basis equal to the date of death value for income tax purposes. This can result in significant reductions in capital gains tax for beneficiaries who sell the assets they receive soon after distribution. The estate can take advantage of the step in basis as well to offload assets for reduced capital gains tax as well.
Estate tax returns may need to be filed for estates with assets valued more than approximately $13 million. The federal estate tax exemption is set to fall to $5 million by January 1, 2026. The documentation used for the inventory, such as appraisals, has the dual function of being an attached exhibit to the federal estate tax return. All supporting documentation needs to be assembled in time to file the estate tax return within nine months of the date of death.
Cataloging Estate Transactions
Closing the estate will usually require reporting the estate’s purchases, sales, income, debts, expenses, and distributions in full before closing the estate. This is done through an accounting which sets forth each transaction, no matter how small, in meticulous detail. This accounting is often filed with the court, and further accounting may be required if the first accounting does not dispose of all estate assets. In order for a court to approve the accounting without prolonged auditing, it will be crucial to keep detailed records, such as current account statements, settlement statements for all real estate sold, and cancelled checks to document deposits and expenses.
Closing the Estate
In Maryland, the estate is considered closed once the court approves the final accounting, and all probate fees are paid to the Register of Wills. By this time, the estate has paid all debts and expenses, and paid out all distributions to beneficiaries. If there are loose ends to be tied up after the final accounting is approved, the estate has 50 days from the date the final accounting was approved to resolve outstanding issues and complete distributions. By that time, all estate assets should be retitled, and all remaining cash earmarked for payment of expenses or distributions.
If you need experienced counsel to help you navigate probate proceedings, call the estate administration attorneys of Batoff Associates at 410-864-6211.
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