FSL Chapter 12R3 - Estate Administration

FUNERAL SERVICE LAW

IN THE UNITED STATES, 2nd ed.

A GUIDE FOR FUNERAL SERVICE STUDENTS

CHAPTER 12: ESTATE ADMINISTRATION

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Probate Court

� Probate is the process of administering an estate and determining the validity of a last will and testament.

� Probate court is the most common court that supervises probate processes, although court names are different in some states.

� These courts also supervise the administration of intestate estates, those in which the decedent did not have a will at time of death.

� The first step in the estate process is for the probate court to appoint a personal representative (executor or administrator) to represent and settle the estate of the decedent.

� The administration process cannot begin until the court has approved of –and officially appointed – a personal representative.

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Testate Estates

� A testate estate exists when the decedent had a last will and testament.

� A court will – in most cases – appoint the person named in the will to be the personal representative.

� A court may however appoint some other person if:

� There is a question of the competency or fitness of the person named in the will.

� There is any potential conflict of interest or a dispute exists or develops while the estate is being settled.

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Intestate Estates

� An intestate estate exists when the decedent did not have a last will and testament.

� A court will usually appoint an immediate family member to administer the estate, such as the spouse or an adult child.

� A court may appoint some other person if:

� it is believed to be in the best interests of the parties involved,

� the parties cannot agree who should be appointed, or

� there is a family dispute.
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Duties of a Personal Representative

� Probate estate is the property and debts of a decedent subject to

administration by the personal representative.

� It is the duty and responsibility of the personal representative to:

1.

Identify the property (assets) and debts (liabilities).

2.

Provide for payment of debts against the estate.

3.

Distribute any remaining assets.

� Remaining assets of an estate (the inheritance) are distributed to:

� the devisees pursuant to the terms of a will, or

� the heirs pursuant to intestate succession laws when there is no will.

� In most cases, a personal representative will employ the services of an

attorney to assist them in complying with state probate statutes.

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Calculation Date

� An initial step to administer an estate is to identify a calculation date from which all assets and liabilities will be based.

� The calculation date used is often the date of death.

� In some states, this date may be a later date, such as 60 or 90 days after death.

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Duty to Inventory Assets

� The personal representative must document a complete inventory of the

estate property (assets).

� Each asset must have a stated valued, and these values may be based on any number of methods, including:

� When determining the value of marketable securities, such as stocks and bonds, the common accounting formula is ‘value plus income less expenses.’ This takes into consideration income generated from stock ownership, such as dividends; and expenses associated with their ownership or management, such as broker fees.

Fair market value

Comparison value

Book value

Professional appraisal

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Duty to Inventory Debits (Liabilities)

� Personal representatives must document a complete list of estate claims and debts (liabilities).

� The list must include all outstanding debts incurred before the date of death or the date of calculation.

� Debts may include such items as:

Utilities

Credit cards

Loans

Mortgages

Medical bills

Insurance premiums

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Duty to File/Pay Taxes and Pay Claims

� Taxes - The estate representative is responsible for paying any taxes owed by the decedent or the estate, including property, school, income, and estate taxes.

� All outstanding federal, state, and local taxes must be accounted for and paid before the remaining estate assets may be distributed to heirs or devisees.

� Pay claims - Claims against the estate must be paid according to probate law requirements that list the order of priority for these payments.

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Solvent or Insolvent Estate?

� Following a complete and thorough inventory of assets and liabilities, it is

possible to determine if an estate is solvent.

� A solvent estate is one in which the assets exceed the liabilities.

� An insolvent estate in one in which the estate does not have sufficient assets to pay the debts (liabilities) of the decedent and/or the estate..

� Probate laws address the issue of an insolvent estate and the distribution of whatever assets are available to be used toward the claims.

� Insolvent estate distribution laws may specify rates and formulas to provide proportional payments to claimants based on the priority of the claim.

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Priority of Claims

� Claims are paid in a priority order based on these three categories.

1. Preferred claims

2. Secured claims

3. Unsecured claims

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#1 Preferred Claims

� Preferred claims are a debt accorded a priority, advantage, or privilege.

� Expenses for administering the estate and funeral services are two preferred claims found in virtually all probate laws.

� Administration expenses include payment to the personal representative and such expenses as an estate attorney or professional appraiser.

� Funeral expenses are often second only to administration expenses.

� Funeral directors need to file a claim in court if the funeral bill is not paid.

� Claimants have a limited time to file claims, and failure to meet deadlines may legally preclude being included in the payment of claims from the assets of the estate.

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#2 Secured Claims

� Secured claims are a debt supported by a pledge, mortgage, or lien on assets belonging to the debtor (person owed money).

� One common secured claim is a car loan, but claims could include lesser items, such as furniture or a computer purchased using a credit agreement.

� A similar situation to a secure claim or lien on personal property is a secure mortgage on real property, such as a residential home purchased with a loan (mortgage) from a bank.

� The mortgage is ‘secured’ because the bank has a legal right to take

possession of the mortgaged property in a foreclosure proceeding if the
mortgagor fails to keep up the mortgage payments.

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#3 Unsecured Claims

� Unsecured claims are not supported by a pledge, mortgage, or lien on other assets.

� These claims represent the lowest priority when it comes to the payment of claims against an estate.

� An unpaid bill for painting a house would be an example of an unsecured claim.

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Estate Asset Distribution

� After all taxes and claims against an estate are paid, the personal

representative can distribute remaining assets to the heirs or devisees.

� This may be accomplished by formal distribution through a probate court or informal distribution by agreement.

� An informal distribution is usually authorized for estates when the value does not reach a specified amount requiring formal probate proceedings.

For example, a state may not require formal distribution of assets for an
estate valued at $30,000 or less.

In cases like these, the representative can file information with the court
seeking approval for informal distribution of assets for a small estate.

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Estate Asset Distribution continued

� Another informal option for distribution of estate assets in some states is to present the court with a family settlement agreement.

� These are an agreement reached by all of the heirs as to how an estate should be distributed.

� A family settlement agreement does not usually need the consent of the court but must be signed by all of the heirs and persons receiving real estate or personal property from the estate, and the agreement must be filed with the probate court.

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Power of Attorney

� A power of attorney (POA) is a legal instrument used by one person (the Principal) to delegate legal authority to another person (an Agent or
Attorney-in-Fact).

� An Agent can make property, financial and other legal decisions on behalf of the Principal.

� A POA is frequently used in the event of illness or disability of the Principal, or in legal transactions where the Principal cannot be physically present to sign necessary legal documents.

� A person with authority over the affairs of another by means of a Power of Attorney ceases to have such authority once the person they represented has died.

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Power of Attorney Types

� A general power of attorney grants an Agent broad powers to act for the Principal. This type of POA ceases to exist upon the disability or incapacity of the Principal. They may be called an ordinary power of attorney.

� A springing power of attorney authorizes one person to act as an Agent for another, effective only upon a certain event occurring (springing). They are commonly employed by individuals that wish to delegate an Agent to manage their affairs in the event they become disabled or mentally incompetent. They may be called a conditional power of attorney.

� A durable power of attorney provides the authority granted under a power of

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Power of Attorney Names/Titles

� Common power of attorney types may use a slightly different name in some states based on the authority granted to the Agent. For example, some states recognize a medical power of attorney to grant authority to act in matters of health and well-being; a limited power of attorney for a specific purpose, such as signing a legal document when the Principal is not available to do so; or a financial power of attorney with respect to fiscal and monetary matters.

� In virtually all cases, addition of the word ‘durable’ to the name of a power of attorney type extends the power being granted to remain in effect even after the disability or incapacity of the Principal.

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Living Will

� A living will – known in some states as a health care directive or advance directive – governs the withholding or withdrawal of life-sustaining treatment from an individual in the event of an incurable or irreversible condition that will cause death within a relatively short time.

� A living will may have language similar to this (continues on next slide):

I direct my attending physician to withhold or withdraw treatment that merely prolongs my dying, if I should be in an incurable or irreversible mental or physical condition with no reasonable expectation of recovery. These instructions apply if I am in a terminal condition; permanently unconscious; or minimally conscious but have irreversible brain damage and will never regain the ability to make decisions and express my wishes.

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Living Will continued

I direct that treatment be limited to measures to keep me comfortable and to relieve pain, including any pain that might occur by withholding or withdrawing treatment. While I understand that I am not legally required to be specific aboutfuture treatments, if I am in the condition(s) described above I feel especially strongly about the following forms of treatment:

• I do not want cardiac resuscitation.

• I do not want mechanical respiration.

• I do not want tube feeding.

• I do not want antibiotics.

• I do want maximum pain relief.

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Health Care Proxy

� A health care proxy is similar to a power of attorney in that the Principal is naming someone they trust to serve as their proxy (agent) to make health care decisions if they are unable to do so themselves.

� A health care proxy may be called a durable medical power of attorney or an appointment of a health care agent or surrogate.

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Health Care Proxy continued

� Naming a proxy can help ensure the Principal gets the health care they prefer in the event they cannot communicate those preferences for themselves.

� A proxy will typically make health care treatment decisions when the Principal is incapacitated and unable to communicate due to a temporary or permanent illness or injury.

� A Principal does not have to be terminally ill to designate a health care proxy or for the proxy to make decisions on their behalf.

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THE END

Author: Larry J Cleveland

Publisher: Hudson Valley Professional Services

PPT Release: #3 June 2022
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FUNERAL SERVICE LAW

IN THE UNITED STATES, 2nd ed.

A GUIDE FOR FUNERAL SERVICE STUDENTS