When a loved one dies, the last thing on your mind is how to settle their estate. Once you’ve taken the time to grieve, the task of handling their final affairs can be daunting, especially when it involves probate. As you navigate your way through process of closing accounts, settling liabilities and transferring assets, use this as a checklist to keep track of your most important responsibilities.
Before the Funeral
Check if the decedent left funeral and burial instructions. Hopefully they shared their plans with a family member, but if not, ask if any family, friends, or the decedent’s attorney, if they have a Letter of Instruction on the matter. You may find the information in the decedent’s will, but it’s not uncommon to open the will days or weeks after the funeral, by which point it’ll be too late for funeral instructions. If you know which cemetery the decedent wished to be buried at, call and ask if they purchased any pre-needs items such as a plot, casket, and gravestone.
Obtain certified copies of the death certificate. Some organizations will accept copies, but others—especially financial institutions—will need an official certificate. It’s a safe bet to request ten certificates and plan to photocopy the rest, but if the decedent has a large estate, you may need more.
If the decedent had an attorney, schedule a meeting with them to open and review the will. If there isn’t an attorney, schedule a formal gathering to open the will with the decedent’s heirs. If the decedent had a trust, you may wish to invite the trustee, too. Once the will has been opened, determine if probate is necessary, or if the decedent made plans to avoid probate. Also, review the trust agreement (if applicable) with the trustee for additional instructions.
In Arizona, estates with less than $75,000 in personal property and less than $100,000 in real estate can skip probate. If the decedent’s estate qualifies for the small estate exemption, file a non-probate affidavit with the county court where they lived or owned property. You’ll still need to gather their assets, settle their liabilities, and distribute their residual estate, but you can do all of that outside of probate court, saving you time and money.
If probate is necessary, file a petition to open probate. In the petition, you’ll need to indicate if the decedent nominated someone to serve as their executor (also known as the personal representative). If they did, this individual will receive authorization from the court to legally act on behalf of the estate, through what are called Letters Testamentary. It’s important for the executor to have these legally binding documents when they approach people and organizations to settle the estate. If the decedent didn’t nominate an executor, or if there are disputes in the family concerning who should be the executor, the court will appoint a third-party administrator.
The probate court will instruct you to mail a notice of the probate proceedings to all interested parties, including heirs, beneficiaries, next-of-kin, and any known creditors. You’ll also need to publish a notice in the local newspaper, informing the community of the probate proceedings. It’s essential to complete both of these steps as soon as possible, as it starts the clock for the statute of limitations on how long creditors have to make credible claims against the estate. Without proper notice, creditors may be allowed up to 1 – 2 years to make a claim; once they’ve received notice, however, they may only have 1 – 4 months. If there’s one thing you don’t want, it’s a bill collector knocking on your door a year from now when the estate has been fully distributed.
You’ll also need to inform the following organizations:
- Banks and financial institutions with whom the decedent has open accounts
- Life insurance and annuities (to process the death benefit)
- Pensions (if applicable)
- Government organizations such as Social Security, Disability, Medicare, Medicaid, and Veterans Affairs (if the decedent is a military veteran)
- Insurance companies including homeowner’s, vehicle/auto, health, accident, disability, and travel (if applicable)
While your primary goal in approaching these organizations is to process final benefits and payouts, and to submit final claims, you’ll also need to inform the organizations if the decedent has a surviving spouse. Most pensions, government benefits, and insurance policies will offer continued benefits for the surviving spouse. Banks and financial institutions will also need to characterize joint accounts as individual accounts under the surviving spouse’s name.
Gather the Assets
Before you start paying final bills, you’ll need to get a clear picture of the estate’s value and what property it owns. Open a new bank account for the estate, and begin by gathering the liquid assets. This includes:
- Bank accounts (checking, savings, CDs)
- Brokerage accounts (stocks, bonds, mutual funds, ETFs)
- Retirement accounts (401k, IRA, Roth IRA)
- Precious metals (gold, silver)
Once you have an inventory of the liquid assets, move to the illiquid assets. These will be a little trickier, as some of them may require you hire a professional appraiser to determine a fair market value. Illiquid assets to look for include:
- Real estate (deeds, titles, leases, mortgages)
- Vehicles (cars, trucks, boats, recreational vehicles, motor homes, motorcycles)
- Personal property (art, jewelry, furniture, antiques, collectibles)
- Safety deposit boxes
The decedent will need to file a final tax return for the year in which they died. Locate the decedent’s recent tax returns, and use the information you’ve just collected on their assets to file the final return. Do not, however, pay the taxes owed (if applicable). You will pay the final tax return after you settle some of the estate’s liabilities.
If the decedent’s individual estate is worth more than $5.49 million, or if the joint estate with their deceased spouse is worth more than $11 million, the estate may be subject to estate taxes. Consult with an estate tax professional to file an estate tax return, and, where applicable, a gift tax return.
Settle the Liabilities
As you are gathering the decedent’s assets, you should begin to receive claims from creditors. Most of these you’ll probably already be aware of from account statements, but it’s not uncommon to come across unexpected claims in the process. Before you pay any bills or claims, be sure to validate the claim to ensure it is a legitimate liability. You have the right to ask for proof of the debt. If you believe a claim is fraudulent, report it to the probate court to assess its validity.
In addition to credit claims, compile any outstanding bills, such as legal expenses, appraisal costs, funeral expenses, utilities, membership dues, or other bills. Once you have all of the liabilities in order, you can begin to pay them off in the following order:
- Administration expenses (legal fees, appraisal costs)
- Funeral expenses
- All other claims
The decedent’s will should dictate which assets and accounts are to be used first when settling their liabilities. Most people prefer to use all of their liquid, non-retirement assets first, and only access retirement assets or illiquid assets if absolutely necessary. Before you liquidate retirement assets, check with a qualified financial advisor to understand the tax implications that may arise from the sale of securities.
As you pay these bills, ensure that the accounts are properly closed. If credit cards and other debt arrangements remain open, you increase the risk for identity theft and fraud.
Distribute the Residual Estate
Once all of the estate’s liabilities have been settled, you may distribute the remaining assets (known as the residual estate) to the beneficiaries. The decedent’s will or trust should clearly dictate who is entitled to specific items, and how the general remaining value is to be distributed to all the beneficiaries.
If the residual estate includes property, speak with the beneficiaries on how they would like to proceed. They can all take possession of the property under joint ownership, either as tenants in common or joint tenancy; or, they could sell the property and split the proceeds accordingly.