There are certain steps that must be taken to close the estate. This article describes the general procedures. The exact process depends on state law.
Will or No Will
When someone dies, an estate proceeding is necessary if the person owned separate assets without designated beneficiaries. If there’s a will, the executor or personal representative named in it should open an estate proceeding to probate the will.
If there’s no will, a family member — usually a spouse or child — will commence an estate proceeding seeking to become the court-appointed administrator of the estate.
In both cases, the opening of an estate is done through the local probate court.
After obtaining the authority from the court to administer an estate, and after opening an estate bank account, the executor or personal representative must perform many tasks. For example, he or she will “collect the assets.” This might involve selling real estate, stocks and other property to turn into cash for deposit. It also might involve transferring certain assets to the beneficiaries as set forth in the will.
Difficulties and delays can arise if there are creditors, multiple beneficiaries, disputes among family members and other issues that might include heirs that cannot be located, a will that has contradictory language or internal court delays.
It can take time to sell certain assets, if necessary. For example, some people die owning businesses, multiple homes, cars, or boats, or unusual assets, such as airplanes. The market for these items might be down because of the economy or other factors.
In addition to collecting the assets, the executor or personal representative pays the debts and taxes. In some cases, money from selling the assets is used to pay debts.
Some people who are unfamiliar with the process may think that an executor or personal representative can collect and distribute assets within a short period of time. However, even if the estate has no outstanding issues, an executor or personal representative cannot seek to close the estate until after the time:
- Creditors are allowed to make a claim (usually five to seven months, depending on the state); and
- Outstanding estate taxes are paid (usually within nine months of the estate opening, depending on any extensions). The IRS and state tax authorities issue estate tax closing letters when an estate tax return is accepted. However, keep in mind that most estates are not large enough to owe estate taxes. The federal estate tax exemption is $12.92 million for 2023 (up from $12.06 million in 2022).
Distributing the Assets
Depending on all these factors, it may be difficult to finalize the collection and distribution of assets. In any event, when the time comes to distribute them, the executor or personal representative can:
- Contact the heirs and beneficiaries and inform them of their shares.
- Provide an informal accounting to the heirs. This includes any fee or compensation the executor or personal representative wants to receive for his or her services, according to state law. An informal accounting may prevent the need for a formal accounting to the court if all the heirs are in agreement as to their shares of the estate and the distributions they will receive.
Prior to distribution, one of the heirs may demand a formal accounting. If so, the executor or personal representative may have to submit one to the court and the court would review it. The court would then decide how to settle the estate.
However, as explained above, a formal accounting is generally not necessary if the beneficiaries and heirs are in agreement on their shares and the expenses. If so, they sign written releases or waivers.
This is what usually happens. However, there are times when beneficiaries or heirs refuse to sign releases. In those situations, the executor or personal representative may consider filing for a judicial accounting so that the court can review and approve it. At that time, the executor or personal representative could request the court to release him or her from any liability.
Note: In some cases, courts require the executor or personal representative to file with the court any tax returns that have been filed with taxing authorities prior to closing the estate.
Don’t Wrap Up Too Soon or Take Too Long
Although it may be tempting to wrap up an estate and distribute the assets, an executor or personal representative must be cautious about moving too quickly. If the assets are distributed and there are still debts and taxes owed, the executor or personal representative could be held personally liable.
How long does it take? It depends on many factors including the size and complexity of the estate. It’s not unusual to take a year or longer. On the other hand, if the executor or personal representative doesn’t move things along in a reasonable amount of time, the court, the heirs or the beneficiaries may intervene. (Some states require the executor or personal representative to provide an affidavit explaining what is causing the estate to stay open for so long.)
Keep in mind that heirs and beneficiaries often feel the process is moving too slowly and their inheritances are being delayed. Communication about the status of the estate may help prevent disputes.
Navigate the Challenges
Bringing an estate to a close can be time-consuming and complicated. Contact your attorney for assistance if you’re an executor, personal representative, beneficiary or heir and you have questions about the process of closing an estate.