Probate and Trust Administration
When a person dies, it is time for the estate plan to be executed. If the decedent had a will, the person who has the duty of administering the estate is called the Personal Representative. The Personal Representative is charged with gathering the assets, ascertaining and paying debts, administration expenses and taxes, and distributing the remaining assets to those persons entitled to receive them. If the decedent had a Revocable Living Trust, then the Trust Estate can be administered without the involvement of the Probate Court, and the person who had the duty of administering the Trust and distributing the assets of the Trust Estate is called the successor Trustee.
Probate Administration. The first thing that must be done is to find the original Will; a copy is not sufficient. The original Will must be filed with the Probate Court along with an Application for Probate, which contains information regarding the decedent's heirs (persons eligible to receive his assets by statute) and his devisees (persons named in his will) and an estimate of his estate. The Application also requests the Probate Court to appoint the Personal Representative. After appointment, the Personal Representative will receive a Certificate of Appointment, which allows the Personal Representative to act with regard to the probate estate. The Personal Representative is charged with submitting several documents, including an Information to the Heirs announcing his appointment, and an Accounting of the estate to the Probate Court. He is also charged with dealing with the creditors of the estate; including publishing notice that the estate is open in the local newspaper, and approving or denying any submitted creditor's claims. Probate Administration is generally complete within a year of the decedent's death.
Summary Probate Administration. In South Carolina, a summary probate administration is available if the same person is named as the Personal Representative and the sole beneficiary. This allows the Personal Representative to avoid the creditor claims period of eight months, and to immediately distribute the property and close the estate.
Specific Responsibilities of the Personal Representative (PR).
- Appraisal. Within ninety days of appointment as PR by the Probate Court, the PR must file an Inventory and Appraisal on a form called the Inventory and Appraisement, describing and placing a value on all of the assets of the estate and the amount of all of the indebtedness secred by liens on the estate assets. Extensions of time from the Probate Court is not difficult to obtain, and if an estate tax return will be required, it may be helpful to seek an extension of time to file the inventory and appraisal so that it can be filed simultaneously with the estate tax return (9 months after the date of death). This helps to ensure that asset values placed on the inventory and appraisal are the same as those on the estate tax return. The PR is not required automatically to use appraisers to establish estate asset values; however, on request of anyone interested in the estate, the Probate Court may requires that appraisers be employed by the PR, and different kinds of assets may require appraisers with different expertise. Even if the Probate Court does not require the employment of appraisers, it may be a good idea to employ them anyway, depending on the assets of the estate. For example, if the valuation of estate assets might result in disputes with the taxing authorities or among beneficiaries, it may be prudent to select well qualified appraisers. If the PR desires to employ appraisers, it is prudent to discuss potential appraisal fees in advance. We can advise you in regard to appraisers and suggest, locate and hire qualified appraisers for you.
- Search for Assets. It is the PR's responsibility to search out and locate estate assets. Some useful techniques include reviewing tax returns for several years prior to the decedent's death, reviewing bank statements, fire and casualty insurance policies, checking with banks, stock brokers, employers, with trade associations, professional associations and other organizations for death benefits, and for veteran benefits if the decedent was a veteran, and other similar inquiries. All of these assets must be included on the Inventory and Appraisement. We will be glad to assist you in the search if you wish.
- Estate Checking Account. An estate checking account should be opened to receive the income to the estate and pay estate expenses. Any final payments owed to the Decedent should be deposited ot this account,. Individually held bank accounts of the deceased should be paid over into an estate checking account so that records of income and expense can be carefully itemized and the estate assets carefully recorded, because this information is required to be submitted to the Probate Court in order to close the estate. We recommend that either we keep the checkbook for the estate and prepare checks for you to sign, or that you submit the check register to us along with the bank statement each month so that we can monitor payments out of the estate and ensure that the payments are made according to the requirements of the law.
- Jointly-Owned Property. Jointly-owned property, where there is a right of survivorship, and joint bank accounts are usually not a part of the probate estate and except for certain duties to report them to the tax authorities, and perhaps pay an estate tax on these assets, the PR is not responsible for them, because the ownership of these types of assets pass at death to the surviving joint owner.
- Creditors of the Estate. Shortly after the will is probated and the PR is appointed, the PR must place an ad in the newspaper, to notifiy creditors of the estate. In some counties, the Probate Court handles the advertising. In other counties, the PR must contact an appropriate newspaper and ensure that the property notice to creditors is published. We will advise you in regard to the appropriate procedure for notification of creditors. The notice to creditors advises them to present their claims against the estate to the PR or to the Probate Court for payment. The notice will appear once a week for three consecutive weeks. Creditors are directed to file their claims within an eight-month period, beginning with the first publication of the creditors notice in the newspaper. All claims arising before the decedent's death must be presented within the earlier of one year after the decedent's death, or eight months from the first publication, or they are barred. it is important that the PR diligently search for claims and notify creditors personally of the deadline. Any claims or bills that you receive should be sent to us for review. We will advise you and recommend appropriate dispositions of the claims. Not all claims are valid and those should be disallowed by the PR.
- Debts to family members. If the decedent owed any money or property to family members or to beneficiaries, a claim from that person should be prepared and filed within the period described above. Otherwise, if the claim is paid even though not timely filed, adverse tax consequences may be incurred by the estate. We urge you to consult with us before any payment is made from estate funds.
- Financial Accountings. Upon the settlement and closing of the estate, the PR must file with the Probate Court a final accounting showing all of the decedent's assets owned at death and all receipts, disbursements, and interim distributions. In order to prepare this accounting, it is important for the PR to maintain accurate financial records. You should keep careful and detailed records regarding all monies or assets paid to the estate. All disbursements shown on the accounting must be substantiated by the submission of signed receipts from the beneficiaries. Failure to do so will result in additional attorneys fees for our time, effort and expense of gathering this information for you after the fact.
- Tax Returns. The PR is also responsible for filing a number of federal and South Carolina tax returns of various kinds, including a Federal Estate Tax Return if the estate is over the federal estate tax exemption, the Decedent's Final Income Tax Return, and an Estate Income Tax Return.
Personal Representative Commission. Unless the will provides otherwise, a PR is entitled by law to receive a commission. If applicable, the statutory commission cannot exceed 5% of all of the decedent's assets, excluding land and non-probate property. Non-probate property includes assets not controlled by the will, such as life insurance payable to third parties rather than the estate, joint bank accounts, retirement or employment proceeds designated for a beneficiary. In additon the PR may be entitled to 5% of income from probate assets earned during administration, and may be entitled to as much as 5% of the proceeds of the sale of land, if authorized by the will. We can compute the commission for you and give you an estimate of the commission if you wish. If the Will provides for a different method of computing the commission, then that provision of the will controls the amount of the commission. The commission will be income to you taxable when you receive it. You are not required to accept the commission and if you intend to waive it, you should advise us as soon as possible. The commission, when accepted and paid, will constitute a tax deduction for the estate which may be applied (i) on the estate tax or (ii) on the income tax of the estate for the tax year in which it is paid.
Final Distribution of Estate Assets. After all of the assets have been collected and the debts and taxes paid (and the tax authorities have notified the PR that the amount of estate taxes is correct), the PR must then distribute the remaining assets to those persons entitled to receive them. Distributions of estate assets to beneficiaries can involve complexities. The timing of distributions can have significant tax consequences and there are provisions of state law which alter the amounts beneficiaries may seem to be entitled to receive and may in fact eliminate certain beneficiaries all together. Consequently, we strongly suggest that you consult with us before making any distributions of estate property.
Pressure to Distribute Assets Immediately. You may be pressed by persons interested in the estate to make early distributions of estate assets, even before creditors have had time to file claims, before all tax issues have been settled and before other estate matters have been put to rest. As the PR, you have the power to make such "early distributions" but you may have to assume some significant personal financial risks to do so. If this becomes an issue, let us know, and we can provide you with some specific advice and information that you can pass on to estate beneficiaries that may help them understand why distributions cannot be made early.
The Length of Time of Estate Administration. It is not possible to complete the administration of an estate in less than about ten months, and a year to thirteen months is the length that the probate statutes and rules contemplate. Normally, and estate administration takes longer than that, typically up to eighteen months and if tax returns are involved, it can take even longer. Consequently, you should not expect to complete the administration of the estate in a very short period of time unless you qualify for a Summary Administration.
Disclaimers of Estate Assets. There may be occasions when assets may be directed under the will or by reason of beneficiary designation form or by reason of joint ownership to one or more persons who desire that such assets pass to someone else. If such persons accept the assets and transfer them to others, the transfer usually constitutes a gift and there may be a legal duty to file a gift tax return and in some circumstances actually pay a gift tax. As an alternative, it may be possible to achieve the same result with a disclaimer and avoid the gift tax problem. If this circumstance develops, you should let us know as soon as possible, because otherwise actions may be taken that make a disclaimer impossible.
Trust Administration. In 2006, South Carolina adopted the Uniform Trust Code; some parts of the Trust Code compile only portions of existing statutory law and common law into one location, without changing either, and are relatively unremarkable. However, some parts do make substantial changes to pre-Trust Code South Carolina law. Overall, the Trust Code codifies some existing South Carolina statutory law and common law, clarifies several issues previously not legislatively or judicially addressed in South Carolina, and changes some existing South Carolina law. The result is that administering a trust is now much like administering a will in probate, with many of the same notification requirements. Trustees have the same duties as the Personal Representative, and must keep the beneficiaries of the trust informed. While we are still learning the full extent of the Trust Code, suffice it to say that this area is just as complex as probate administration. Please contact us and let us guide you through this process.