The process of settling a deceased person’s estate can be very complicated, and your role as executor can feel very overwhelming. Settling an estate to adhere to the deceased’s final wishes is an important and demanding job.
In past articles, we have spoken about the family pressures that come when you are the trustee of your parent’s trust. Today, we want to focus on the duties and responsibilities you have to ensure that all the deceased’s expenses are paid before you can make distributions to the beneficiaries.
Disbursements: What Needs to Happen First
Disbursements are payments made from the estate to pay debts of the deceased, funeral bills, and all ongoing costs of administering the estate (funeral expenses, storage fees, and attorney’s fees).
As the executor, it is your responsibility to determine if the estate’s assets can cover all outstanding debts and bills. If there is not enough, a probate judge will prioritize the debts that should be paid.
Note: Before you pay any outstanding bills, you must notify all creditors and potential creditors of the deceased’s death and pay legitimate outstanding debts first.
You may need to review bank statements and other financial documents to determine what bills need to be paid. This can include final bills for things like credit cards, cell phones, and outstanding medical bills. Secured debts, such as mortgages or car loans, must also be settled.
Distributions: Your Inheritance
A distribution is any money paid to the benefit or care of the beneficiary. After all of the disbursements are made, the deceased’s outstanding debts are settled, and all final taxes are paid, the executor can distribute the remaining assets to the beneficiaries.
In some cases, when there was no estate planning done (a.k.a. there was no living trust in place that laid out the distribution plan) or if there is litigation between the beneficiaries and the trustee during the disbursements, you may need to go to probate court. When this happens, your distributions need to have the court’s blessing on the stipulation (agreement on how to distribute the inheritance).
These are additional things to keep in mind if and when your distributions go through probate court:
The process of settling an estate can sometimes be a long and drawn-out process, especially when litigation is involved. The process can simply be too long for elderly beneficiaries who are dependent upon the money tied up in probate. To address this issue, the courts may allow preliminary distributions to be made to the beneficiary before the estate is ready to be closed.
The executor must obtain court approval by filing a noticed petition with the court before making a preliminary distribution to a beneficiary. Pending approval, the court must find that the “distribution may be made without loss to creditors or injury to the estate or any interested person.” (Probate Code Section 11621) If the beneficiary is elderly and the other parties involved are not harmed, the court will likely uphold the petition.
Avoid Premature Distributions
Settling an estate can be a very sensitive and daunting process. The executor must proceed with caution. As executor, you can potentially be held personally liable if premature distributions leave insufficient assets to cover the deceased’s unpaid bills, administrative expense, or unpaid taxes.
Need Help With Your Disbursements & Distribution?
The Marcia L. Campbell, CPA team, are experts at creating balanced court accountings according to the probate code and providing in-depth analysis of the financial details in question.