5 Tips for Avoiding Probate Headaches

Every day, the estate and trust team at Bulman Dunie assist clients who serve as “Personal Representatives” (a/k/a “Executors”) of an estate in navigating the probate process.

Probate can be complicated, but there are some easy steps that can be taken from Day 1 to make probate easier (and less expensive).

Here are five tips to keep in mind to make your probate experience less stressful.

1) Keep Contemporaneous and Detailed Records

As the Personal Representative, you have several fundamental responsibilities, including the duty to gather Estate assets and the duty to distribute these assets in accordance with the terms of the Will or the laws of intestacy (if there was no Will). However, the responsibility that will keep you most closely tied to the probate court is your duty to file periodic “accountings” showing all transactions involving estate assets.

In Maryland, you will be required to file a first accounting 9 months after the estate is opened.

All too often, the Personal Representative only starts to gather the information for the accounting in the days or weeks immediately preceding the deadline. This creates a very difficult situation where clients are trying to recreate long-forgotten financial transactions and piece together many months of estate administration from memory.

Make your accounting much less stressful. Keep a running ledger. This need not be formal—it can even be an Excel spreadsheet. Whenever money comes into or goes out from the estate, note the date, the amount, the payee/payor, and the purpose of the transaction.

This will help ensure the accounting is complete, easy to prepare, and reduce stress and panic as deadlines near.

2) Don’t Forget—The Accounting Starts Before You Were Appointed Personal Representative

Often, an estate is not opened until several weeks (or months) after a loved one passes away.

A common misperception is that the Personal Representative must only account for transactions on the Decedent’s accounts from the date the estate is opened.

This is not correct. The Personal Representative has a duty to account for every transaction on the Decedent’s accounts from and after the date of death.

As such, as soon as an estate is opened, it is essential to obtain statements for all accounts held by the Decedent from the date of death through the present day.

From there, the Personal Representative should review these bank statements, try to ascertain the nature of all transactions, and investigate those that are unclear. Many transactions will be obvious–automatic debits for utilities and mortgage payments. However, some may be personal checks that were written pre-death and did not clear until after death. The Personal Representative will eventually need to account for and explain those payments. It will be much easier to obtain information about this payment closer to when it was made than several months later when the accounting is due.

3) There Will be an Exacting Accounting Standard

Probate accountings start with the “date of death” value of estate assets. For a bank account, this refers to the cash value in the bank account at the close of business on the day of death. For a securities account, this usually refers to the average value of the securities in the account on the day of death (or the last day of trading before death).

From there, the accounting filed by the Personal Representative will need to report all gains and losses on these accounts—down to the penny.

This includes interest payments, dividend payments, and, if securities are cashed out, gain or loss on the transaction.

Commonly, when we prepare accountings, we get a list from our clients of the checks and expenses paid, but clients forget that they must also account for what may be small (and passive) gains and losses. There may also be bank fees or service fees that were reflected on a statement but not affirmatively paid. These, too, will need to be accounted for.

Provide your probate team (attorney and paralegal) with a copy of all statements on all accounts, carefully review all statements, and include these passive gains and losses on your ledger sheet.

4) Don’t Reimburse Yourself Without Asking First

Commonly, Personal Representatives advance payment for expenses of the estate. This may include small expenses such as copies of death certificates or larger expenses such as payment of funeral expenses or final bills.

Additionally, Personal Representatives may incur travel expenses in connection with the administration of the Estate.

Some advances can be reimbursed without approval of the court and can simply be shown on the accounting as an expense of the estate that has been reimbursed. Other advances cannot be reimbursed without approval of the court. Whether an expense can be reimbursed with or without court approval often depends upon the type of expense and the terms of the Decedent’s Will. Not to mention that reimbursement for travel expenses may be classified as something totally different —”commissions”.

In short, we understand that Personal Representatives regularly make large advances. And we absolutely understand that Personal Representatives want to be —and deserve to be—repaid. But do not reimburse yourself without first clearing it with your probate legal team. You may unintentionally create a difficult situation.

5) Don’t Forget about Taxes

We’ve written about it previously.

When someone dies, there will be a final state and federal income tax return for calendar year when death occurred (with tax owed on pre-death income).

Moreover, after death, if the estate earns income of more than $600.00 in a calendar year—a very low threshold when taking into account current interest rates – the estate may have a state and federal income tax filing obligation.

Our probate clients are often hyper-focused on debts, selling a home and other assets, and gathering assets of the estate for distribution. But don’t forget about those tax obligations. If the Decedent worked with a tax preparer, it is usually best to just go back to that same preparer for these returns. Accountant fees and taxes are an expense that can absolutely be paid out of the estate.

Final Thoughts

Even an estate with relatively simple assets will require detailed attention. Starting your administration off on the right foot—keeping detailed and contemporaneous records down to the penny and not reimbursing advances without first talking to your legal team, will make your probate experience much easier.

Contact Jeremy Rachlin or Liz Farley at (301) 656-1177 if we can help you navigate the world of probate.