Probate is the legal process of authenticating a will and distributing assets after someone dies. It involves locating and determining the value of the deceased’s assets and paying final bills and taxes before distributing the remaining estate to the beneficiaries. The deceased’s estate can be settled through informal or formal court accountings, but what exactly is the difference between the two processes?
Informal Accounting: What is it?
Informal accounting of an estate is performed by the executor, who was appointed by the deceased.
During the process of informal accounting, the executor reviews and interprets the will to determine the deceased’s wishes for asset distribution. This may include all types of assets such as cars, jewelry, stocks and bonds, primary residence, and other real estate. Each asset will be valued at the date of death using tools like the Kelly Blue Book or a third-party appraiser. Depending on the type of asset, it may be beneficial to have an attorney present to help determine the accurate value and the best course of action for each asset.
Next, the executor uses the cash balance to pay off all debts owed and prepares a list of the remaining assets to be reviewed and approved by the beneficiaries. It is also recommended that the executor have bank and escrow statements before and after everything was sold, to clearly show the net gains/losses from the process.
After all of the beneficiaries have approved, and the executor submits a final accounting of the estate to the court, then the assets can be distributed, and the executor can close out the estate.
Formal Court Accounting: What is it?
Formal court accounting must be performed by a court-appointed administrator. Formal accounting must take place if no will exists, the deceased did not appoint an executor, or if the beneficiaries are disputing the distribution of assets.
During this process, the court-appointed administrator must decide what assets go to each beneficiary. Formal accounting must also be presented to the court in legal proceedings during which beneficiaries can argue about the distribution of assets before the judge makes a final decision.
Formal court accounting can cost the estate quite a bit of money due to attorney costs, court fees, and the cost of a court-appointed administrator. With formal accounting, the probate process can also take years as beneficiaries argue over the deceased’s assets.
Informal vs. Formal Court Accounting
If there is no disagreement among beneficiaries and all other requirements are met, informal accounting is likely the best course of action. Informal accounting is significantly less expensive with minimal costs for property transfer and filing documents. With informal accounting, the executor can also settle liabilities and distribute assets in as little as six months.
On the other hand, formal court accounting is much more comprehensive. Formal court accountings can show whether or not there has been any misappropriation of assets or mismanagement of funds. They can also prove that an estate’s assets were not properly managed or even if a trustee did something unlawful. Overall, formal court accounting requires a much greater level of detail.
Have More Questions?
Marcia L Campbell, CPA has over 25 years of experience providing professional court accounting support. If you have any additional questions or need help with your court accountings, please contact us.