When I start representing someone who is about to become a Fiduciary (Executor or Administrator) of an Estate, I always talk about “how an Estate finishes”.  Like many things in life and business, if you know where you are trying to go it is much easier to make a good plan to get there.

Not every State handles “estate completion” the same way.  There are two basic approaches:  mandatory accounting vs non-mandatory accounting.

In a mandatory accounting State, there is some proceeding that must be filed so the the Court knows the Estate has been completed and the fiduciary has done what they are supposed to do.  This generally involves filing forms and paying a filing fee, and there are generally time constraints (so if it is not ready to be completed you have to explain why).  I’m not going into more detail because New York (where I practice) is NOT a mandatory accounting State.

In a non-mandatory accounting State, the fiduciary is not required to file anything with the Court to show that the Estate is completed.  This raises two logical questions:

  1. What SHOULD fiduciaries do to complete an Estate and protect themselves?
  2. What happens in New York if there is some issue or problem in completing the Estate?

What a fiduciary SHOULD do is keep good records, communicate regularly with the beneficiaries in a transparent way, file any tax returns that are required, and then….SEEK TO COMPLETE THE ESTATE WITH AN INFORMAL ACCOUNTING.

This is done by showing the beneficiaries what has been done.  This can be done with a letter, or on a spreadsheet, or in any way that shows a bottom line for a proposed final distribution.  With this informal accounting we would send a document called a “Receipt & Release”.  This document essentially says “I know what you did as Fiduciary and I agree it was correct and I agree with the bottom line and I release any claims I may have about this”.  The letter to the beneficiary makes clear that when the Receipt and Release is signed “then you will get your money”.

What if the beneficiaries don’t agree?  Or don’t respond?

While New York is not a mandatory accounting State, the Surrogate’s Courts have an Accounting Department, and there is plenty of law on how one CAN file a formal Accounting Proceeding.  Unfortunately, this happens a lot.  The Accounting Department is where the action is, and most of the really acrimonious disputes are there.

In a nutshell, when a Fiduciary wants approval for what he has done, or what he is proposing to do to complete the Estate, a formal accounting is filed with the Court.  The Court will then issue a Citation to the interested parties, which essentially says “Fiduciary has filed the attached accounting and is asking the Court to approve it.  Come to Court on (date) or a Decree will be issued approving the Accounting.”

If a beneficiary gets such a Citation and wants to dispute something, they come to Court and file Objections to the Accounting.  This then becomes a case, like any other civil litigation….discovery, motions, conferences, etc.

Generally, an expensive, nasty mess.

Which is why it’s better to do a good job as fiduciary and find a way to account informally.

Next post – what if you are the beneficiary and the Fiduciary doesn’t account (formally or informally)…. at that point it’s a “Petition to Compel an Accounting”

 

What happens if someone involved in an Estate is dead?  These situations are very common.  A few standard approaches apply….let’s look at a few situations:

The most important distinction to know is that PRE-deceased situations are very different than POST-deceased situations.  When I refer to “PRE” and “POST” I am talking about when the person died in relation to the decedent (the one whose Estate we are talking about)

The basic rule is that POST-deceased persons do not lose their rights.  Generally, the interest a post-deceased person had in an Estate now belongs to THEIR Estate.

A quick example – A widow with three adult children dies with no Will.  Her heirs would be her three adult children.  Some time passes and no action is taken in this woman’s Estate and then one of her adult children (let’s make him a son) dies. What are the shares in the widow’s estate?  It would be one-third each to the two living children and one third to the heirs of the post deceased son.  Those heirs would be determined either by the son’s Will, or if he had no will, by HIS heirs under intestacy.  Let’s give the post-deceased son a spouse and 4 minor kids, and no will.  So now, his one-third interest will be divided within his Estate under intestacy ($50K + half to the spouse and the other half among the minor children).

Wait, it gets worse…..if we want to move forward with the widow’s Estate, we can’t even get started until we get jurisdiction over the post-deceased son’s estate.  That is, we have to establish the post-deceased son’s estate before we can even move forward with the main estate.  It is not unusual to process a post-deceased estate BEFORE you can even do the main Estate.

Pre-deceased situations are different.  Let’s take the above example and make the adult son pre-deceased.  In that case, the widow’s Estate would go one-third to each of the the two surviving children and one-third split among the 4 grandchildren.  The daughter-in-law would be OUT.  (Note – in a post-deceased situation she would be IN for a meaningful share).

I have been involved in Estate with multiple “estates within estates”.  These complexities must be addressed or nothing can move forward.

There are a few important lessons in all this:

  • Estates should be addressed promptly.  For various reasons things can get delayed.  I have seen situations where nobody did anything in an Estate for 20 or 30 YEARS!  This usually happens when the only asset is a house, and nobody does anything because some family member is living in the house and then they die (or move, or need money).  But even in non-extreme situations, a delay of a few years due to procrastination creates complications related to post-deceased parties.
  • People should make Wills.  When people don’t make Wills, results are often a crapshoot.  In the predeceased child situation above, if the widow had a Will her wishes would be clear.  Maybe she would have left something to the daughter-in-law…it happens more than you might think.  Maybe she would have put her grandchildren’s funds in a trust and named an appropriate Trustee.
  • People should make Wills, Part 2.  If the post-deceased son above had a Will, it would have been clear what HE would have preferred, and I suspect it would have been 100% to his spouse…for her benefit and so she could take care of their children.  Having the inheritance going partially to the grandchildren is a horrible result, especially if they are minors.  The money would be tied up in Guardianships, with a ton of money wasted, to say nothing of the inconvenience and heartache.  Easily preventable, but a person has to be pro-active and make the Will.
  • When people make Wills, among the most important considerations are the “what-if” scenarios.  Well drawn wills reflect the persons intentions in case someone pre-deceases.  Wills that don’t do this leave too much to chance.

While “estate within estate” situations are more work than estates without this issue, it is a huge mistake to procrastinate.  These situations only get harder, and yes, there are cases with MULTIPLE estate within estates.  My own personal record is six!

If you are confronted with one of these situations, or if you want to prevent such a situation, please contact me.