ESTATE ADMINISTRATION – WHAT YOU NEED TO KNOW

After a death occurs, there is generally still much to do as we say goodbye to those who have passed on. There are the details of planning a memorial service, coupled with the legal issues of settling the estate of the deceased loved one. Whether our loved ones planned ahead or not and regardless of to what extent, there are likely a few phone calls to make and a few things to discuss. Shupe & Associates P.C. hopes to help make that time as painless as possible. This guide will walk you through the probate process so that you can know what to expect after a loved one dies. It may motivate you to modify your estate plan to account for these issues. In any case, we’re here to help.

WHEN A DEATH OCCURS

The death of a friend or loved one is a complicated time. Grief and loss can be exacerbated by not knowing exactly what to do. Death, for better or for worse, requires attending to certain technicalities that Shupe & Associates P.C. would like to help you with. The following list of action items can provide you with a checklist of what needs to happen when someone close to you passes on.

Who to call first:

  1. If the death occurs in a nursing home or hospital, the mortuary.
  2. If the death occurs at home under hospice care, call the hospice nurse.
  3. If the death occurs at home, call the coroner or mortuary.
  4. If the death is unexpected or accidental, call 911

After the mortuary is notified, their representatives will bring the deceased into their care. A funeral director will collect vital statistics for the death certificate such as place of birth, profession, spouse information, etc.

Responsible parties should discuss the following regarding last wishes:

Viewing or visitation? Who should be invited/permitted?

Memorial services? Remembrance ceremony?

Disposition of the remains? Traditional burial? Traditional entombment? Cremation?

Who will preside or otherwise participate during any ceremony. Clergy? Family members? Fraternal or civic organizations?

  • Things to decide, generally driven by the type of services selected
  • Casket or alternative container?
  • Urn?
  • Printed material for the memorial service?
  • Markers and headstones?
  • Flowers?
  • Third party accommodations or cash advances?
    a. Newspaper notices?
    b. Motorcycle/police escorts?
    c. Honorariums?

 SOME KEY ISSUES
When settling the estate of a loved one, many key issues come into play that may not be com-monly known. A personal representative/executor, for example, is personally liable for financial mistakes made during the estate settlement process. Legal advice, then, is critical. The following issues must be addressed in almost every estate.

The $50,000 Exempt Property and Family Allowance
When a person dies without a will or with a will that excludes certain beneficiaries required under the law, these allowances are available to fill the gaps. In estates that are small or even insolvent, these allowances can defeat the claims of creditors and provide financial relief for the surviving spouse and/or minor children.

Determining Lawful Heirs
If there are heirs under the age of 18, deceased, disabled, or missing, the issue of inheritance can get complicated. Additional court proceedings called conservatorships may be necessary to make certain that assets are distributed to the correct heirs or to representatives of disabled, minor, or missing beneficiaries.

Taxes
What taxes are due upon death depends in part on the size of the estate. There is no state or fed-eral death taxes if the estate is $3.5 million or less. For estates larger than $3.5 million, an IRS Form 706 needs to be prepared and submitted within 9 months of the individual’s death. Income taxes must be paid for the last year of the individual’s life through a Form 1040 and for the indi-vidual’s estate through a Form 1041.

Resolving Disputes
Most estates are settled without dispute. However, the law allows for disputes to be resolved through the courts and frequently occur when the personal representative is working with a hand-written, outdated, or otherwise unclear will. There is the opportunity for disputes to be settled amicably, of course, but probate proceedings are available and required when those issues cannot be resolved. One responsibility of the personal representative is to obtain releases from benefi-ciaries from authorizing the distribution of the assets before closing the estates. Otherwise, the personal representative will be personally liable.

What is Probate?

Put as simply as possible, probate is the process of proving that a will is valid so that the wishes expressed in that will can be carried out with legal authority. It also includes the paying of any creditors of the deceased loved one. Colorado’s probate process is fairly simplified, so over 90% of estates in Colorado are resolved without having to go through the probate court. Generally, the court appoints a personal representative to pay the bills, sell the assets, and distribute personal possessions.

Contrary to popular belief, wills do not avoid probate. They are the very documents that probate is for. If avoiding probate is an estate planning goal, consider some of the options discussed below or talk with an attorney about creating a revocable living trust.

What Assets are Subject to Probate?
Certain assets are set up to pass to specific beneficiary upon death such as property held in joint tenancy or assets with a payable on death (POD) designation. These assets are not subject to the probate process though they may be subject to taxes. So, if a husband and wife have a joint ac-count and the husband dies, the wife gets the funds in that account automatically, regardless of what the will says.

Also, life insurance and retirement accounts that name a specific person as a beneficiary are not probate assets. Those assets pass to that designated beneficiary without the need for court inter-vention.

Be aware that Colorado law requires a decedent’s will to be filed with the Probate Court within ten days of death.

How do Probate Assets Pass on to Heirs?
After all non-probate assets are determined and separated, the remaining assets are generally ad-ministered in one of three ways:

Small Estate Affidavit
If the value of probate assets taken together is less than $50,000, an heir can fill out a form called a small estate affidavit and present that document to whomever holds the assets. The persons or institutions holding the assets are then obligated to release the assets without further action. This works for all assets except real estate, regardless of the value of that real estate.

Informal Probate
This is the process by which the vast majority of estates in Colorado are ad-ministered. It generally takes between 6 and 12 months. The process is not court supervised and an attorney would have a minimal role.

People without homes or other real estate including time shares, oil, and gas interests are the most likely candidates for the informal probate process.

Administration of the estate is commenced by filing certain documents with the probate court. While those initial documents appear uncomplicated, there are pitfalls that can complicate set-tlement down the road. It would definitely be beneficial to consult with an attorney before get-ting too far into the process.

Once those initial filings are made, the estate is “opened.” The Personal Representative (or PR, formerly known as the “executor”) assumes responsibility for paying the bills and taxes and dis-tributing the remaining probate assets to the beneficiaries. Colorado law sets forth the order in which debts are to be paid. The will nearly always names a PR. Otherwise, an heir or other in-terested party can request that the court appoint one.

Formal Probate
When informal probate is insufficient, such as when the estate becomes too complex or when there is dispute among the interested parties, formal probate is required. The Probate Court Judge will resolve disputes and issue orders which all parties must follow.

Closing an Estate
An estate is closed informally by filing a document stating that the PR has paid all debts and made all distributions according to the will.

TAXES
There are potentially three different tax forms that need to be filed before the tax day following the individual’s death, separate from any tax penalty that heirs may face.

Form 1040
This familiar form will need to be filed by the surviving spouse or PR on behalf of the deceased. Indicate on the form that this will be the final Form 1040. Depending on when the death occurs, it may be necessary to file the return from the year previous and from the year of death.

Form 1041
This form is required for trusts and estates each year that they are functioning enti-ties, as they are legally separate taxpayers. Trustees and PRs have the legal responsibility to re-port all income, expenses, and deductions that pertain to the entities they represent. There may be interplay between Form 1040, 1041, and 706 (discussed below) which can become complicat-ed. It is wise to retain the services of an accountant or attorney to help in the preparation of all tax forms related to the estate.

Form 706
Congress establishes at what asset threshold estates are to be taxed. For 2010, Con-gress retroactively continued the 2009 exclusion of $3.5 million. For estates beyond that $3.5 million, Form 706 is required within 9 months from the date of the death, but can be automatical-ly extended for an additional 6 months. (Form 1040 and 1041 are not due until the next tax day). This form requires the help of a professional. Bring to your tax advisor accurate information re-garding all assets, liabilities, expenses, and deductions.

As a note, Colorado currently has no inheritance tax, but some other states do. If your family member died in another state or owned property in another state, consideration must be given to the estate and inheritance tax laws of those states.

SAFE DEPOSIT BOX

If you have the safe deposit box key and a copy of the death certificate, gaining access should be easy. Without the key, you can still gain access, but the institution will likely charge you a fee to open the box and there will usually be a delay of at least a day.

There are some particular things that can occur depending on what is inside the box. If you are searching for a will or burial document, the institution is legally obligated to open the box and see if a will is inside. If found the institution will take possession of the will and file it with the proper court after making a copy for you.

If there are assets in the safe deposit box and they have an apparent value of less than $50,000, the institution will deliver those items to you once you provide them with a Small Estate Affida-vit (mentioned above). If the value appears to be more than $50,000, the institution will likely refuse to deliver them to you until you provide documentation that you are the Personal Repre-sentative (by court order) of the estate.

Be patient if you encounter some resistance from the employee of the institution where the safe deposit box is held. An inexperienced employee may not have encountered this situation before. If you don’t have luck after asking to speak with a manager, show the employee a copy of the Colorado statute governing safe deposit boxes (included in the Appendix). If all else fails, consult with your estate attorney.

A FEW WORDS ON COPING WITH LOSS

Again, the purpose of this document is to help educate you and hopefully give you one less thing to worry about while you focus on that which is most important: saying goodbye to a loved one. The following are some things to think about as you deal with the emotions of saying goodbye and transitioning to a life without that loved one.

Time
As days turn into weeks, months, and even years after the death of a loved one, the griev-ing process can take on many forms and nuances. Acknowledge that it may take time to adjust. It may take time alone, time with others whom you trust and who will listen, and likely will take both. If you’re having trouble finding someone to chat with, the mortuary will have referrals to clergy or to organizations who specialize in grief support.

Care for yourself
Saying goodbye is an exhausting process. Find activities that renew you and keep you connected to people and things that you love. Take some time to exercise, relax in a hot bath, or take a drive. Find something fulfilling to work towards. You will feel better equipped to deal with the feelings of grief that must ultimately be experienced.

Security
Do what you can to unburden yourself from financial or other stresses. In this time of reflection, see what you can do to pay down your own debt and put your finances in order. Try to get back into your old routine or establish new ones. Be patient and know that there is no hurry.

Find positive associations.
A great deal of hope can be garnered by spending time with others who have experienced a similar loss. Don’t be afraid to inquire of others as to what things helped them when they were feeling the way you are.

Accept help
Others who care about you may not comfortably be able to express their love and desire to support you. It can be awkward. The thing is, you and they may be equally at a loss at how best to support you. Find what strength you can in those expressions.

Know yourself
Most importantly, know when you might need some help, perhaps from a counselor or therapist. If you are unhappy with the difficulty you’re having in adjusting, take some time to consider seeking professional help. It may be just what you need. Sometimes even the process of deciding to get help is cathartic by itself.

APPENDIX

Colorado’s Safe Deposit Box Law.
C.R.S. 15-10-111. Entry into safe deposit box of decedent.

(1) Whenever a decedent at the time of his death was a lessee or owner of a safe deposit box, the custodian shall, prior to notice that a personal representative or special administrator has been appointed, shall allow access to the box by:

(a) A successor of the decedent, if such decedent was the sole lessee or owner of the box, upon presentation of an affidavit made pursuant to section 15-12-1201. For the purpose of delivering the contents of the box in accordance with said section, and an official of the custodian or, if the custodian is an individual, the custodian or his attorney-in-fact shall be present during such entry solely to determine if the box contains an instrument purporting to be the will of the decedent; or

(b) A person who is reasonably believed to be an heir at law or devisee of the decedent, or agent or attorney of such person, for the purpose of determining whether or not the box contains a will of the decedent, deed to a burial plot, or burial instructions. Such entry shall be made in the presence of an official of the custodian or, if the custodian is an individual, in the presence of the custodian or his attorney-in-fact.

(2) If an instrument purporting to be a will of the decedent is found in a safe deposit box as a re-sult of an entry pursuant to subsection (1) of this section, the purported will shall be removed therefrom by the custodian or the representative of the custodian and by him shall be mailed by registered or certified mail or delivered in person to the clerk of the district or probate court fo the county where the decedent was resident. If there is doubt as to the county of residence of such decedent, the purported will shall be lodged in the office of the clerk of the proper court of the county wherein the safe deposit box is located. If the safe deposit box contains the deed to a burial plot or burial instructions not part of a purported will, such instruments may be removed by the presumed successor, heir at law, or devisee, or agent or attorney of any such person.

(3) After the appointment of a personal representative or special administrator for the decedent, the personal representative or special administrator shall be permitted to enter the safe deposit box upon the same terms and conditions as the decedent was permitted to enter during his lifetime.

(4) If at the time of the decedent’s death one or more other persons were legally permitted to enter the safe deposit box, their permission to enter shall continue, notwithstanding the death of the decedent.

THE OTHER INEVITABILITY:
WHAT YOU NEED TO KNOW ABOUT TAXES AFTER DEATH

This document is intended to provide the most basic advice as to what tax forms will need to be filled out on behalf of a deceased loved one. Some may be simple enough to be done on your own if you have had some experience with taxes. A tax professional or attorney should be able to guide you on the more complex forms.

There are potentially three different tax forms that need to be filed before the tax day following the individual’s death, separate from any tax penalty that heirs may face.

Form 1040.
This familiar form will need to be filed by the surviving spouse or PR on behalf of the deceased. Indicate on the form that this will be the final Form 1040. Depending on when the death occurs, it may be necessary to file the return from the year previous and from the year of death.

Form 1041.
This form is required for trusts and estates each year that they are functioning entities, as they are legally separate taxpayers. Trustees and PRs have the legal responsibility to report all income, expenses, and deductions that pertain to the entities they represent. There may be interplay between Form 1040, 1041, and 706 (discussed below) which can become complicated. It is wise to retain the services of an accountant or attorney to help in the preparation of all tax forms related to the estate.

Form 706
Congress establishes at what asset threshold estates are to be taxed. For 2010, Congress retroactively continued the 2009 exclusion of $3.5 million. For estates beyond that $3.5 million, Form 706 is required within 9 months from the date of the death, but can be automatically extended for an additional 6 months. (Form 1040 and 1041 are not due until the next tax day). This form requires the help of a professional. Bring to your tax advisor accurate information regarding all assets, liabilities, expenses, and deductions.

As a note, Colorado currently has no inheritance tax, but some other states do. If your family member died in another state or owned property in another state, consideration must be given to the estate and inheritance tax laws of those states.