Hello again, Kevin Lynch here from Westminster Wealth Management.
In our last discussion, Estate Settlement 101, we covered the critical first steps to take in the initial weeks after a loved one passes – things like securing the will, getting death certificates, obtaining legal authority as executor, and setting up the essential tracking log and estate bank account. Once that groundwork is laid, the process moves into a phase that involves more detailed investigation and management. Think of this next stage, roughly covering Weeks 4 through the first 3 months, as Estate Settlement 201: digging into the specifics of assets, liabilities, and ongoing management.
Weeks 4-6: Taking Stock – Inventory and Valuation
Now that you have the legal authority (your Letters Testamentary) and a system for tracking (your logbook!), it’s time to get a comprehensive picture of everything the estate owns. The goal here is to gather all the documentation and accurately assess the total value of the estate.
Create a Detailed Asset Inventory: This means listing everything. Bank accounts, investment accounts, retirement accounts (IRAs, 401ks), real estate, vehicles, valuable personal property (art, jewelry, collections), life insurance policies owned by the deceased, business interests, and even outstanding loans owed to the deceased. You'll need account numbers, approximate values as of the date of death, and details on how each asset is titled (individually, jointly, in trust, payable-on-death, etc.). This inventory is crucial for probate court filings, tax purposes, and eventual distribution to beneficiaries. Your logbook and the redirected mail will be helpful in uncovering all potential assets.
Secure Appraisals: For certain assets, you'll need formal appraisals to establish their value as of the date of death. This is almost always required for real estate. It's also necessary for valuable personal property like antiques, art, significant jewelry collections, or business interests. Why? The date-of-death value is important for tax purposes (determining potential estate tax liability and establishing a "step-up" in cost basis for heirs) and ensures fairness when distributing or selling assets. Use qualified appraisers appropriate for each type of asset.
Document Everything Meticulously: As you identify assets, gather all related paperwork. Find the deeds for real estate, titles for vehicles, latest bank and investment statements, copies of insurance policies, stock certificates if they exist, partnership agreements, etc. Organize these documents systematically. This documentation supports your inventory and will be needed for transferring ownership later.
Photograph and Log Personal Property: Especially for household contents and personal belongings, taking photos or videos can be incredibly helpful. Create a log, perhaps room by room. This serves multiple purposes: it helps with appraisals if needed, provides a record for insurance purposes (in case of damage or theft before distribution), and can be shared with beneficiaries, particularly those who live far away, to help them understand what tangible items are part of the estate.
Continue Managing Property: During this inventory phase, you still need to actively manage the estate's assets. This means paying the mortgage, property taxes, and insurance on real estate; ensuring vehicles are stored securely and insured; and generally protecting all property from waste or neglect. Remember to pay these ongoing expenses from the dedicated estate bank account you set up.
Months 2-3: Addressing Liabilities – Notifying Creditors and Paying Debts
Parallel to identifying assets, you also need to figure out what the estate owes. This period focuses on identifying all liabilities and properly addressing the estate's debts according to legal requirements.
Publish Notice to Creditors: Most states require the executor to formally notify potential creditors about the death and the opening of the estate. This is often done by publishing a notice in a local newspaper for a specific period. This publication starts a clock ticking – creditors typically have a limited time (e.g., a few months) to file a formal claim against the estate for any money they believe they are owed. Failure to file within the specified timeframe usually bars the claim. Your estate attorney will handle the specifics of this publication according to your state's laws. You may also be required to send direct notice to known or reasonably ascertainable creditors (like mortgage companies or credit card companies shown on recent statements).
Collect and Verify Debts: As bills come in (thanks to your mail forwarding!) and potential creditor claims are filed, carefully review each one. Gather final bills for medical expenses, utilities, credit cards, loans, etc. Verify the amounts and ensure they are legitimate debts of the deceased. Keep meticulous records of all claims received and bills paid.
Pay Valid Debts: This is a crucial step that requires careful handling. Generally, legitimate debts of the deceased must be paid from estate assets before any distributions are made to beneficiaries. There's often a legal priority for paying debts if the estate doesn't have enough money to cover everything (e.g., funeral expenses, administration costs, taxes usually come first). Crucially, pay these debts using funds from the estate bank account, not your personal funds. I strongly recommend consulting with your estate attorney before paying any significant or questionable debts. They can advise on the validity of claims, the proper order of payment, and how to handle situations where debts might exceed assets (an insolvent estate). Don't just start writing checks without understanding the legal priorities and implications. As I mentioned before, I've seen situations where people paid debts they weren't legally obligated to pay from the estate.
Maintain Meticulous Records (Still!): Continue logging everything. Every bill received, every claim filed, every check written from the estate account, every communication with a creditor. This detailed financial record-keeping is non-negotiable and forms the basis for your final accounting to the beneficiaries and the court.
Ongoing Property Expenses: Remember those ongoing costs like property taxes, insurance, utilities, and maintenance? Keep paying them from the estate account as they come due until the assets are sold or distributed.
This "digging in" phase requires diligence and organization. You're marshaling all the assets, identifying all the debts, and managing the estate's property while navigating specific legal notice requirements. It’s methodical work. Keeping that logbook updated and staying in communication with your professional team (attorney, CPA, financial advisor) is key.
Once you have a clear picture of assets and debts, and the creditor notification period has passed, you'll be ready to move toward the next major phase: dealing with taxes and planning for distribution, which we’ll cover in Estate Settlement 301.
Disclaimer: This blog post is for informational and educational purposes only and does not constitute legal, tax, or investment advice. Consult with qualified professionals for advice specific to your situation. Kevin Lynch Sr. and Westminster Wealth Management are not attorneys or tax advisors.