Asset Management and Distribution
When and how assets should be distributed from the estate depends on many factors, including the nature of the assets and the needs of the beneficiaries. Some common kinds of assets are discussed below.
Everyone who receives property from the estate should sign a receipt for that property. When we represent a personal representative, we prepare appropriate receipts and discuss with the personal representative how best to arrange for the execution of the receipts. For the personal representative’s protection, no property should be distributed until we have discussed the receipt process.
Furniture, Jewelry and Personal Effects
These items (together with automobiles, watercraft and aircraft not necessarily located at residence) are generically referred to as “tangible personal property.” This property often can be distributed soon after it is appraised. Until appraisals are completed, none of these items should be removed from the decedent’s estate. If a personal representative feels that certain items cannot safely be left in the residence, we can advise him or her how best to proceed concerning these items.
Automobiles, Boats and Aircraft
No one should operate any vehicle owned by the decedent after the decedent’s death. It is the personal representative’s duty to prevent irresponsible use of the decedent’s property; failure to do so may result in personal liability.
If vehicles owned by the decedent are to be transferred to others, the transfer generally should be arranged as promptly as possible. If vehicles are to be sold, their sales should be arranged expeditiously. When we represent a personal representative, we provide the necessary papers to transfer a vehicle’s title to a new owner (whether the new owner is a devisee or a purchaser).
Property Held in Co-Ownership
At death, the decedent may have owned assets with other people. Property owned as joint tenants with “rights of survivorship” generally becomes the property of the surviving owners automatically at the decedent’s death. Property held as tenants in common usually belongs to the co-owners in proportion to their stated ownership. For probate purposes, the type of co-ownership is important. Usually property held in joint tenancy with rights of survivorship does not pass under the decedent’s will and does not become subject to control by the personal representative of the decedent’s estate. On the other hand, property held by the decedent as tenant in common with others generally requires probate for the decedent’s share of the property.
Some types of property commonly held in co-ownership are: bank accounts, certificates of deposit, real estate, automobiles, stocks and bonds. It is sometimes possible to save taxes by refusing or disclaiming property owned in joint tenancy with others. Accordingly, when we represent a personal representative, we recommend that surviving joint owners refrain from retitling jointly-owned assets and from collecting income (interest, dividends, etc.) from these assets until we have discussed the advantages and disadvantages of disclaimers.
Property held by the decedent in co-ownership is usually included (in whole or in part) in the decedent’s taxable estate for federal and Maine estate tax purposes, hence the need to value it. The surviving joint owner, however, automatically becomes entitled to possess the property and collect any income from it. Surviving joint owners of bank accounts and certificates of deposit should give their social security numbers and addresses to the banks in which these accounts are maintained and should report all income from these accounts on their income tax returns unless disclaimers are a possibility. Surviving joint owners of real estate become automatically responsible for all property taxes, insurance costs and other maintenance expenses when a decedent dies. These obligations occur irrespective of whose name is on the tax bill or any other bill. No action by the personal representative is necessary to transfer this property to surviving joint owners.
Except for bank accounts and certificates of deposit, property passing to surviving joint owners generally is not liable for the decedent’s debts or expenses of administering the decedent’s estate. Joint owners of bank accounts may be forced to contribute to the payment of the decedent’s debts, estate taxes and expenses of administration if the other assets of the decedent’s estate are insufficient to satisfy all those obligations. Jointly-owned real estate is liable for estate taxes due with respect to the estate and is subject to liens in favor of the federal and state governments until those taxes are settled.
Accounts held by the decedent “in trust for” another (called “ITF” accounts) are usually treated just like joint accounts. If the decedent had any ITF accounts, we can provide the personal representative with advice concerning these accounts.
If the will leaves real estate to a named person, generally that person becomes responsible for the real estate immediately upon the decedent’s death. In other words, a named devisee becomes immediately and personally responsible for property taxes and insurance but also becomes entitled to any income that the real estate produces (for example, rental payments). Similarly, if a decedent dies owning real estate and having no will, this real estate passes to the decedent’s heirs with both rights and responsibilities.
An exception to this general rule does exist. The personal representative has the right to control the decedent’s real estate and collect the rents from it if the real estate may have to be sold to pay taxes or to satisfy debts of the decedent or expenses of administration. If the estate contains real estate left to a named devisee or devisees, we discuss with the personal representative whether control over the real estate should be relinquished to the devisee immediately or exercised by the personal representative. The devisee should be notified of the personal representative’s decision.
If the personal representative must control real estate that is left to named devisees, or if the estate contains real estate that is not left to a named devisee, the estate must pay all expenses connected with the real estate (such as taxes and maintenance expenses) and will collect any rent that the real estate produces.
Regardless of whether control over real estate is relinquished immediately to a devisee or an heir or retained by the personal representative, the personal representative has the right and power at any time during the estate’s administration to sell real estate if cash is required to pay debts, expenses of administration or taxes. When the personal representative is sure that the real estate need not be sold, the personal representative will sign and deliver a deed of distribution of the real estate.
Sometimes deeds of distribution are not prepared until after an estate’s federal and Maine estate tax liabilities have been finally settled. When we represent a personal representative, we prepare deeds of distribution for each parcel of an estate’s real estate. If the personal representative requests, we will also record each deed in the Registry of Deeds for the county in which the real estate is located. When preparing deeds of distribution, we rely on the legal descriptions furnished to us by the personal representative and the decedent’s family members. We do not search the title to real estate that the decedent may have owned. We also do not schedule the decedent’s name as it may appear in the Registry of Deeds for any county. If the personal representative feels that a title search or any research in a county Registry of Deeds is necessary or desirable, we can assist the personal representative in finding a real estate attorney who can perform the necessary title work.
In the case of each estate whose personal representative we represent, we recommend that if the decedent had stocks or bonds in his or her own name in certificate form the certificates be brought to our office for storage. We then are able properly to identify, inventory and value them for tax purposes. If the stocks and bonds are in street name with a broker, we need a copy of the most recent brokerage statement on which these assets are listed. When the time comes to sell or distribute the securities, we can, on the personal representative’s instruction, arrange for them to be reissued in the names of the persons entitled to them or sold through a broker. If the personal representative does not have a broker on whom he or she relies, we can suggest several.
If the decedent had many different securities in his or her own name, it may be advisable to open a custody account at a bank or brokerage house to hold the securities and to collect the income they earn. It is easier to sell or transfer securities through a custody account than from one individual’s name to that of another. Using a custodian to collect income from securities is generally less costly than any other reliable form of income collection. In these situations, we discuss with the personal representative whether or not the estate could benefit from establishing a custody account and can recommend custodians if the personal representative does not have one in mind.
If the decedent maintained a custody account, it usually makes sense to continue using it through the period of estate administration. Distributions of securities to devisees or to heirs may then be made directly from the custody account. The custodian also can sell assets at the personal representative’s instruction, as necessary, to pay taxes and expenses.
If the decedent had securities held in a dividend reinvestment plan, it is necessary to close the dividend reinvestment account during the estate’s administration either to distribute the securities or to sell them for cash. Administration generally progresses more smoothly if these accounts are closed promptly.
Including certificates of deposit and other cash accounts.
The decedent’s cash assets must be collected so that they can be used to pay the decedent’s debts and the expenses of administering the estate. Eventually, they can be disbursed pursuant to the will or the laws of intestacy if no will exists.
Certificates of deposit owned by the decedent may be collected, without penalty, regardless of when they otherwise would have matured. If we are informed that any are about to mature or roll over, we advise the personal representative about them.
Very early in the administration we ask the personal representative to sign letters authorizing us to close the decedent’s bank accounts and redeem certificates of deposit. The funds collected from these accounts are then deposited into an interest bearing checking account in the name of the estate. The personal representative will be the only person authorized to sign checks on this account. This approach assures that none of the estate’s funds will be spent without the personal representative’s knowledge and approval.
If the decedent’s assets include more than $250,000 in cash, we may need to establish several accounts at different institutions. The estate’s deposits in a single bank should not exceed the $250,000 limit of FDIC insurance on deposits.
While the personal representative will be the only authorized signatory for estate accounts, we recommend that we keep the bank statements (with duplicate statements provided to the personal representative) and checkbooks for accounting purposes. Having this financial information allows us to prepare income and estate tax returns for the estate as well as an account of what becomes of the estate’s assets during administration. In our experience, it is always more difficult and time-consuming for us (and therefore more costly for the estate) if we must extract the information we need from bank books maintained by someone else, even if that someone else is an excellent record keeper, than if we maintain the books ourselves.
If the cash left by the decedent is insufficient to satisfy all of the estate’s obligations (the decedent’s debts, funeral bills, bequests of cash under the will, taxes, our fees and other administrative expenses), other assets of the estate must be sold to raise additional cash. It is the personal representative’s job to decide which assets to sell, at what price and at what time. Ordinarily, however, assets left in the will to named individuals should be the last things sold. Tax advantages or disadvantages may affect the sale of particular assets. We discuss the estate’s cash needs and asset sales as the administration of the estate progresses.
All the assets included in a decedent’s taxable estate (including property held in co-ownership, annuities, pension and retirement plan assets) must be appraised. Appraisals are required even if no federal or Maine estate tax is due. Appraisals should be made early in the estate administration because, until the appraisals are complete, no firm idea of the estate’s cash needs is possible.
We are generally able to identify appropriate appraisers for most kinds of assets. We particularly welcome any information that the personal representative may have about appraisers the decedent may have used previously.