Why Probate and Trust Administration Takes Some Time
I've encountered several cases lately where the personal representative of an estate or successor trustee of a trust is anxious to distribute all of the estate or trust within weeks after taking over the estate or trust after the death of the original owner.
They resist me when I tell them to "let things settle". I think sometimes they believe I'm just trying to run up the legal fees (even when I am not charging by the hour).
Some recent events have helped some clients learn why I advice waiting several months to making any distribution of the assets. In one case, a personal representative has been hit with about $200,000 in claims against the estate. We had been waiting to see if one alleged creditor would make the claim for about half of that amount, but the other $100,00 was a surprise. And these appear to be valid creditors.
In another case, a successor trustee recently received a letter from a collection agency seeking information to collect on a debt allegedly owed by the decedent. We have reason to think this is not a legitimate debt, but can't be sure at this time.
In both cases, if the person in charge of the estate or trust would have found himself personally liable if he had failed to heed my advice and had paid out the assets to the heirs and then found there wasn't enough left to pay the creditors.
And, ladies and gentlemen, that is why we wait, because it is my job to protect the personal representative or trustee from making that sort of mistake. Creditors can make claims for four months to a year after the date of death, depending on a number of factors. So making a distribution before we know what creditors expect to get paid can put the personal representative in a bad position. We've had unknown creditors "come out of the woodwork" in the eleventh month, wiping out the estate assets to pay those valid claims.
And there's always the issue of taxes. Even if there is no estate tax due as a result of the death, two income tax returns may be required. One return reports income earned during the year until the date the decedent died, and one reports income earned on the estate assets after the decedent's death until the end of the calendar year. The IRS is a "supercreditor" and will go after a personal representative or trustee if there isn't enough money in the estate or trust to pay the taxes because the personal representative didn't handle the estate properly.
So, my advice continues to be to hold your horses and wait to make distributions until it is safe to say all creditors claims are known.
They resist me when I tell them to "let things settle". I think sometimes they believe I'm just trying to run up the legal fees (even when I am not charging by the hour).
Some recent events have helped some clients learn why I advice waiting several months to making any distribution of the assets. In one case, a personal representative has been hit with about $200,000 in claims against the estate. We had been waiting to see if one alleged creditor would make the claim for about half of that amount, but the other $100,00 was a surprise. And these appear to be valid creditors.
In another case, a successor trustee recently received a letter from a collection agency seeking information to collect on a debt allegedly owed by the decedent. We have reason to think this is not a legitimate debt, but can't be sure at this time.
In both cases, if the person in charge of the estate or trust would have found himself personally liable if he had failed to heed my advice and had paid out the assets to the heirs and then found there wasn't enough left to pay the creditors.
And, ladies and gentlemen, that is why we wait, because it is my job to protect the personal representative or trustee from making that sort of mistake. Creditors can make claims for four months to a year after the date of death, depending on a number of factors. So making a distribution before we know what creditors expect to get paid can put the personal representative in a bad position. We've had unknown creditors "come out of the woodwork" in the eleventh month, wiping out the estate assets to pay those valid claims.
And there's always the issue of taxes. Even if there is no estate tax due as a result of the death, two income tax returns may be required. One return reports income earned during the year until the date the decedent died, and one reports income earned on the estate assets after the decedent's death until the end of the calendar year. The IRS is a "supercreditor" and will go after a personal representative or trustee if there isn't enough money in the estate or trust to pay the taxes because the personal representative didn't handle the estate properly.
So, my advice continues to be to hold your horses and wait to make distributions until it is safe to say all creditors claims are known.
Posted by Karen Brady at 1/23/2012 5:05 PM 
Categories: Probate, Trust Settlement
Tags: probate trust administration personal representative trustee creditors claims tax liability of estates settle living trust
Categories: Probate, Trust Settlement
Tags: probate trust administration personal representative trustee creditors claims tax liability of estates settle living trust
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