Estate settlement is the process of paying off a deceased person’s debts and distributing their assets and property to beneficiaries. A decedent can no longer own property, so it has to transfer to living beneficiaries according to some legal means. The probate process is one of these means. It can be long and time-consuming or quick and relatively simple, depending on the nature of the estate.
An Estate Settlement Timeline
Estate settlement begins when a will and death certificate are submitted to the probate court. An executor is typically named in the will. This is the individual who will take on the job of settling the estate. The court will appoint a personal representative if an executor isn’t named or declines the job.
The New Castle County Government Center indicates that the court will then grant the named executor “letters testamentary,” authorizing them to act on behalf of the estate. They have a fiduciary responsibility to put the welfare of the estate and its beneficiaries over their own interests.
The executor must take an inventory of everything the deceased owned. They must identify the decedent’s debts and creditors. The debts will be paid from the estate to the extent possible. Final state and federal income tax returns for the decedent must be filed with the IRS, and an estate tax return may need to be filed as well. Any taxes due must be paid.
The executor can then make bequests of the remaining property to the named beneficiaries in the will after submitting a final report to the court. All this can take about six months if the estate is basic and simple, according to the American College of Trust and Estate Counsel. A more complicated estate administration can take years to settle. The timeline can vary by state.
An Estate Settlement Checklist
It can help to keep a list of what you must do if you’ve been named as executor of a loved one’s estate. Take the steps in order:
- File the papers. File a petition with the court and submit the will and the death certificate to open a probate proceeding. Notify all known creditors, beneficiaries and heirs that this has been done.
- Take an inventory of assets. Take an inventory of estate assets and the decedent’s personal property. Don’t assume that those mentioned in the will are the only ones that exist. Check the deceased’s computer for online accounts and their personal papers for account statements and titles.
- Have assets appraised. The American Institute of Certified Public Accountants recommends having valuable assets appraised so you have a good handle on their worth.
- Take an inventory of debts. Identify those you can from the deceased’s bank account records and personal paperwork, but almost all states require that you also publish notice of the death in a newspaper because creditors have a prescribed period of time to make claims for what they’re owed.
- Open a checking account for the estate. This typically requires transferring the decedent’s cash assets into it as well as life insurance proceeds and money raised from any property that must be sold. You’ll pay creditor claims from this account as well as ongoing expenses of operating the estate.
- Pay creditors. Pay creditors to the extent possible from available funds after the prescribed time period for their claims has expired. You may have to additionally sell assets to raise money to pay these claims, and this usually requires first getting permission from the court. Keep a detailed record of receipts.
- Distribute bequests. Distribute bequests from the remaining cash and property to the estate’s beneficiaries. This won’t be possible if the estate is “insolvent,” according to New Jersey Courts. An insolvent estate is one where the decedent’s debts and liabilities exceed their property and assets owned. The entire estate will be apportioned among the creditors in this case.
Estate Settlement Process Without a Will
An estate is referred to as “intestate” when the deceased doesn’t leave a will. The individual’s property will pass to a prescribed list of beneficiaries according to state law, according to Iowa State University. Assets will typically pass first to the surviving spouse and the decedent’s children. Unrelated individuals and more distant family members, including parents and siblings, are often left out.
Probate is required for all assets that can’t be transferred to a living beneficiary through some other legal estate-planning means. Insurance policies, retirement accounts and investment accounts usually have designated beneficiaries, so these assets would avoid probate, as would real estate held with someone else as joint tenants with rights of survivorship and property placed into a living trust.
When Is an Estate Settled?
An estate is settled and can close when all remaining property is distributed to beneficiaries and the executor submits receipts and a final report of the proceedings to the court.
- The American College of Trust and Estate Counsel: Inheritance and Estate Settlement
- American Institute of Certified Public Accountants: Estate Settlement Checklist
- Iowa State University: The Estate Settlement Process
- New Castle County Government Center: Probate Process
- New Jersey Courts: Rule 4:91-1 – Proceedings When an Estate Is Insolvent
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.