{Read in 5 minutes} When the Surrogate’s Court issues Letters in the Estate of a deceased person, the person, who may be an Executor or an Administrator (depending on whether the person died with or without a Will), is charged with collecting the assets of the deceased and distributing them in accordance with their fiduciary duties.
Ultimately, the Court may review an Executor’s or Administrator’s actions incident to an accounting proceeding — however, that is relatively rare; less than 5% of all Estates will ever file a judicial accounting proceeding. Still, even without the specter of a looming court proceeding, it may be worthwhile to review the way an Executor or Administrator should manage information in order to ensure that no issues arise later. Here is an overview of the basics.
First, the Executor or Administrator is in charge of identifying all of the assets of the Estate.
This may include real property, bank accounts, and/or investments. The Executor should ascertain a date-of-death value for each of these items.
– Cash: The Executor or Administrator simply looks at the balances in the accounts on the date of death. A bank statement will likely contain all the needed information.
– Publicly traded stocks and bonds: Much like cash accounts at banks, the Executor or Administrator can look up the information online using the individual investment’s CUSIP number and averaging the high/low price for the day. Brokerage firms can also provide this service, sometimes free of charge.
– Intangible personal property: Whether it be incredibly valuable museum-quality artwork, or the leftover knick-knacks in the deceased’s apartment, the Executor or Administrator should consider getting an appraisal of the property to know its true value. This is often necessary anyway if the Estate must file an estate tax return, although fewer and fewer Estates must file returns since the recent changes to the estate tax laws.
Knowing date-of-death value is essential because if the Executor or Administrator liquidates the assets, it might generate a gain or loss that the Estate might need to report on an income tax return. This is also helpful to the Executor or Administrator if the beneficiaries or creditors claim that he or she sold an asset for significantly less than it was worth.
Second, the Executor or Administrator should maintain all of the Estate assets under the name of the Estate.
This means that the Executor or Administrator will close the bank account(s) and/or brokerage account(s) in the name of the deceased and reopen accounts titled in the name of the Estate. The Executor or Administrator will be the sole signatory on these accounts and can use the funds to pay ongoing expenses, such as legal fees, accounting fees, carrying costs of real property, etc.
New York law requires that Executors, Administrators, and Trustees of certain Trusts open accounts at branches located within the State of New York. However, once opened, they may transact business at branches outside of New York State. This is essential because it will provide the fiduciary a record of what happens to the assets of the Estate when the Executor/Administrator/Trustee needs to provide that information to the beneficiaries during the accounting process.
Third, a good Executor or Administrator will keep receipts and invoices for all of the expenses that they paid.
This is going to be essential if anyone questions what happened. Try to avoid paying in cash whenever possible. An estate check will allow the Executor or Administrator to pay directly from the estate accounts; most banks will also give the Executor or Administrator a debit card that has a Visa or MasterCard logo. This will allow the Executor or Administrator to pay expenses by credit card directly to vendors, rather than charging it to a personal credit card and writing an estate check to reimburse themselves. At first blush, this could potentially look to a beneficiary or creditor like the Executor or Administrator is simply distributing assets to themselves.
If the Executor or Administrator must pay for some things in cash, the smart Executor/Administrator will keep receipts for all of these expenses, no matter how small, to demonstrate that they were expenses on behalf of the Estate, and not payment of the Executor’s or Administrator’s own personal expenses.
In summary, good bookkeeping exemplifies the adage, “An ounce of prevention is worth a pound of cure.” It will make the Executor’s or Administrator’s life much easier when they account, whether informally to the beneficiaries or to the Court, and when filing required tax returns.
For more information on this topic, please contact me.