Articles

ESTATE ADMINISTRATION

Estate administration is the formal process of handling the financial affairs of one who has died. Personal representatives who are responsible for estate administration face many significant decisions and issues during the administration process, such as when to pay creditors, when and how to make distributions from the estate, and whether to file and how to prepare inventories and accountings. Personal representatives who are unfamiliar with probate and estate administration may wish to seek legal counsel to assist with the administration of the estate; however, legal representation is not required.

PROBATE

Probate is the proceeding in which the Last Will and Testament (the “Will”) of the decedent is proven as valid and recorded with the court and is often the first step associated with estate administration. In the Commonwealth of Virginia, a Will is generally probated in the circuit court for the city or county where the decedent resided at his or her time of death.

To probate the Will, the clerk of the circuit court will require an original Will and evidence of the decedent’s death (such as an original death certificate). If the Will is not self-proving (meaning an affidavit signed by the decedent and the witnesses certifying that the statutory requirements of due execution of the Will were complied with was not attached to the Will), arrangements need to be made for at least one of the witnesses to the Will to be present. The clerk will place the witness under oath to make inquiries about the execution of the Will by the decedent and the signatures of the witnesses on the Will vouching for the authenticity of the decedent’s signature. If the decedent had a holographic Will (a Will wholly in the decedent’s handwriting), two disinterested witnesses are required to prove the decedent’s handwriting. The clerk also will request an estimate of the value of the estate which was located in Virginia as of the date of death of the decedent.

The fraudulent destruction and concealment of a Will with the intent to prevent its probate is a felony in the Commonwealth of Virginia.

QUALIFICATION AS THE EXECUTOR OR ADMINISTRATOR

A personal representative must qualify before the clerk of the circuit court to obtain the authority to act on behalf of the estate of the decedent. If the decedent died with a Will, the clerk will qualify the personal representative as executor at the same time that the Will is probated (those who may qualify as executor are generally set forth in the Will of the decedent). If the decedent died without a valid Will, the clerk will qualify the personal representative as administrator of the estate (statutory law sets forth who may qualify as administrator of the estate).

Qualification is not always required. For example, if the decedent owned assets which were all held jointly with right of survivorship, qualification will not be necessary since the survivor, in his or her capacity as co-owner, can effect the transfer of title of such assets in the event the title to such assets is not automatically transferred upon death.

Qualification Requirements

In order to qualify, the personal representative is required to obtain a fiduciary bond unless such bond is waived, and may be required to obtain security on the fiduciary bond. The personal representative will also be required to present a list of heirs under oath to the clerk of the circuit court where probate and qualification take place and the clerk of any circuit court where real estate which is an asset of the estate is located. An heir is a person designated by law to succeed to the real estate of a decedent if the decedent died without a Will. Therefore, the list of heirs may differ from the beneficiaries who the decedent named in his or her Will.

Certificate of Qualification

At the time of qualification, the clerk will provide a certificate of qualification which the personal representative can use as evidence of his or her authority to act on behalf of the estate. A personal representative who needs to transfer title for multiple assets from the name of the decedent into the name of the estate should obtain several certificates of qualification at the time of qualification.

Commissioner of Accounts

In the Commonwealth of Virginia, a Commissioner of Accounts is assigned to oversee the personal representatives who qualified for each estate. The Commissioner of Accounts will audit filings, known as the inventory and accountings, made by the personal representative on behalf of the estate to ensure that the estate is administered in accordance with the Will of the decedent (if the decedent died with a Will) or in accordance with the laws of descent and distribution (if the decedent died without a Will).

PROBATE AND NON-PROBATE ASSETS

One of the first estate administration duties of a personal representative is to identify the probate assets of the estate. Probate assets are all property, real and personal, in which the decedent had an interest and which do not pass by operation of law or by contract to another party upon the decedent’s death. Examples of probate assets include bank accounts titled in the name of the decedent, individually, and any accounts payable to the estate of the decedent by beneficiary designation.

Non-probate assets are those which pass outside the probate estate and are not controlled by the Will of the decedent. Examples of non-probate assets include real property owned by the decedent and another as joint tenants with right of survivorship, bank accounts which are payable on death to another, and life insurance proceeds which are payable to a named beneficiary other than the estate of the decedent.

ESTATE ADMINISTRATION DUTIES OF THE EXECUTOR OR ADMINISTRATOR

By qualifying as personal representative for an estate, the executor or administrator accepts certain responsibilities and duties in connection with the estate. The personal representative has general estate administration duties, such as identifying the assets of the estate, paying known expenses and debts of the decedent and the estate, and distributing the estate to the beneficiaries or heirs. The personal representative also has specific estate administration duties which are set forth by statute, such as notices which must be mailed to various parties and filing requirements with the court and Commissioner of Accounts.

General Estate Administration Duties

In addition to identifying the assets of the estate, the personal representative may need to re-title assets in the name of the estate, open an estate checking account, and apply for a taxpayer identification number for the estate. The estate is a taxable entity separate and apart from the decedent. Therefore, the estate should not use the social security number of the decedent for purposes of reporting income received by the estate to tax authorities.

Another important estate administration duty of the personal representative is to file any necessary federal and state income tax returns on behalf of the decedent and the estate. This may include the final income tax return of the decedent, an estate tax return, and an estate income tax return for one or more years.

Affidavit of Notice, Inventory, and Accountings

In the Commonwealth of Virginia, within thirty days of qualification, the personal representative is required by statute to provide notice of the probate of the Will and/or qualification of the personal representative to certain persons who may have an interest in the estate. Some of the persons who are required to receive such notice include the surviving spouse and heirs at law of the decedent. Within four months of qualification, the personal representative must file an Affidavit of Notice with the clerk of the circuit court which states that the requisite notice was provided to the interested parties.

Within four months of qualification, the personal representative also is required to prepare and file with the Commissioner of Accounts an Inventory for Decedent’s Estate (unless an exception applies). An Inventory for Decedent’s Estate is a list disclosing the probate assets of the decedent and the market value of such assets as of the decedent’s date of death.

Within sixteen months of qualification, the personal representative is required to prepare and file with the Commissioner of Accounts an Account for Decedent’s Estate (unless an exception applies). An Account for Decedent’s Estate reports the receipts and disbursements of the estate within twelve months from the date of qualification, as well as the assets on hand at the end of the reporting period. If the estate is settled prior to twelve months from the date of qualification, the Account for Decedent’s Estate will be the first and final Account. However, if the estate is not settled within twelve months of qualification, the personal representative will be required to file more than one Account for Decedent’s Estate.

Payments to Creditors and Distributions

The personal representative may take actions to protect against claims from creditors of the decedent or the estate which may arise subsequent to the distribution of the estate to the beneficiaries or heirs. Following the filing of a report of the accounts of a personal representative and of the debts and demands of the decedent’s estate, a personal representative may file a motion for the court to order creditors and all other persons interested in the estate to show cause at a scheduled time before the court against the distribution of the estate to the beneficiaries or heirs. A personal representative should comply with the court’s distribution instructions (which are issued on or after the designated date to show cause) and properly distribute the assets of the estate in order to protect himself or herself from personal liability for claims against the estate which may arise subsequent to the distribution of the estate to the beneficiaries or heirs.

The personal representative is responsible for properly distributing the assets of the estate. For some estates, distribution may be more complicated than writing one or more checks to each beneficiary or heir. For example, if the decedent dies without a Will, the personal representative must determine how to distribute the estate in accordance with the laws of the Commonwealth of Virginia. In the Commonwealth of Virginia, statutory law sets forth how to divide the estate and to whom the estate is distributed if the decedent dies without a Will. If the decedent dies with a Will, issues may arise if the estate is insolvent, or if the decedent did not provide for the disposition of all of his or her assets. In addition, the personal representative may need to decide whether to distribute the assets in-kind or whether to liquidate the assets of the estate and then distribute such assets to the appropriate beneficiaries or heirs.