Losing a loved one is never easy.  It can be a difficult and trying time for relatives and friends. Typically, the decedent will leave an estate containing assets they owned when they passed. To administer the estate and ensure the assets are distributed in accordance with the Decedent’s will or applicable laws, an Executor or an Administrator is often appointed, either through a will or by the courts. Typically, Executor’s or Administrators are referred to as a personal representative.  In the event that you are named as a personal representative of a decedent’s estate, you can quickly become burdened with the additional stress of dealing with the administration of the estate, including such items as filing all applicable federal, state and local tax filings, bill payment, asset retirement and the eventual closing of the estate.  For many, this is often a confusing and challenging process.  In this article, I will touch base on some of the initial steps a newly appointed personal representative should take in the Commonwealth of Virginia; however, many of these steps are similar in nature to other states as well.

One of the first steps that every personal representative should take is to qualify as the Executor or Administrator of the estate with the local probate office, typically located at the circuit court of the county or city in which the decedent last resided. Qualification is a very important step as most banks, brokerage firms and other entities will require the personal representative to produce proof of qualification before they are able to act on behalf of the estate.

If the decedent died testate (with a will), the Executor named in the will should take the will and any subsequent codicils, death certificate and an Application for Probate and Letters to the local probate office for qualification. In addition, the executor will also be required to pay a fee based on the estimated value of probate assets in order to qualify as the Executor. Once the Executor is qualified, they will receive a Letter of Qualification from the local probate office.

If the decedent died intestate (without a will), an Administrator instead of an Executor will be appointed by the local probate office, although their powers and responsibilities will remain essentially the same.  In general, preference is given to certain individuals by the local probate office when choosing an Administrator.  These preferred individuals (in order of preference) typically include the surviving spouse of the decedent, anyone who is entitled to received property of the decedent by law in the absence of a will, any next of kin, any creditor to whom the decedent became obligated prior to death, or any person of good character residing in the county who applied with the local probate office.  In order for the Administrator to qualify, they will need to submit the death certificate and Application for Letters of Administration to the local probate office. The Administrator will also be required to pay a fee based on the estimated value of probate assets in order to qualify as the Administrator. Once the Administrator has qualified, they will receive a Letter of Administration from the local probate office.

In addition to the steps mentioned above, the personal representative is also required to post a bond, unless the Will specifically states that it is not required. The bond is a written promise from the personal representative in an amount set by the local probate office based on the estimated assets held in the estate.  With the bond, the personal presentative promises faithful performance of the duties regarding the estate.  The personal representative is then deemed responsible and could be required to pay to the estate any sums lost or taken from the estate as a result of any unfaithful performance of their duties.

Normally, the personal representative should also obtain an Employee Identification Number (EIN) for the estate as soon as possible.   This can be completed online through the IRS website in a matter of minutes or by mailing or faxing the required Form SS-4 to the IRS.  The personal representative will also have to determine the correct due date of each type of applicable return and filing.

Another important step is to make sure all of the Decedent’s accounts, such a bank or investment accounts, have been switch to the name and EIN of the estate as soon as possible. This may require opening new accounts in the name of the estate and transferring the assets into those accounts.  Making these changes timely will greatly assist in the preparation of the required filings, especially Federal Form 1041 and the Decedent’s final Form 1040.  This can sometimes become troublesome, especially if the Personal representative is unaware of all of the accounts held by the Decedent.  One method to discover these potentially unknown accounts is to examine the Decedent’s Form 1040 for the past few years and note which accounts were reported.  Another method includes contacting local banks and investment companies to see if the Decedent had any accounts held with those companies.

A knowledgeable CPA with a focus in estate planning can help a personal representative navigate these issues, as well as many other issues that may arise during the administration of an estate.  At Yount, Hyde & Barbour, P.C., our Family Wealth Planning team understands the difficulties often faced by personal representatives during the administration of an estate and want to work with you to make sure the process go as smooth as possible.

In my next article, I will dive deeper into other issues affecting personal representatives, such as required tax filings, probate and the eventual closing of the estate.

By: Derek McCarty

Supervisory Senior at YHB – Yount, Hyde & Barbour