Money-Saving Estate Administration Tips for New York Fiduciaries

Serving as an executor or administrator of an estate can be daunting. Here are some tips to make your life easier and save money.

Your attorney's fees will be reduced to the extent that you can perform estate administration, which includes gathering information, marshalling assets, and distributing property. Although this article is geared towards New York residents, most of its principles apply throughout the U.S.

Don't start until you're ready. If you are a nominated executor or administrator of a loved one's estate, allow sufficient time for grieving. You won't be effective if you're an emotional wreck.

An executor is nominated by the decedent in his or her Last Will and Testament, which, after death, is offered for probate in the surrogate's court of the state where the decedent was domiciled. An administrator, usually a close relative, is appointed by the court when a decedent dies without a Will.

Executors and administrators are fiduciaries. They hold a position of trust in which they are responsible for administering a decedent's estate.

Estate administration is difficult and time-consuming. Do not undertake this task unless you're in reasonably good health. If you can't spare the time, don't serve.

Hire a qualified lawyer if the estate requires the filing of estate tax returns, fiduciary income tax returns, or a probate or administration proceeding. Keep in regular contact with your lawyer and ask questions whenever you have concerns or don't understand something.

Many states allow a small estates proceeding, which is a simplified process in lieu of probate or formal court administration. In New York, small estates proceedings are governed under Article 13 of the Surrogate's Court Procedure Act (SCPA) and are called proceedings for voluntary administration. Under this procedure, the petitioner files a short form and pays a $1.00 fee. Certificates of Appointment are often obtained on the spot.

In New York, a small estate is one in which the decedent left no more than $30,000 in personal property subject to court administration. If the decedent in a small estates proceeding left a Will, it is filed with the court but not probated.

Small estates usually don't require the services of a lawyer or accountant.

Substantial estates must file one or more estate tax returns. An estate tax return is a snapshot of the decedent's assets and liabilities at death. For decedents dying in 2009, a federal estate tax return (Form 706) is required for gross estates of $3.5 million or more. A New York Estate Tax Return (Form ET-706) must be filed for estates over $1 million. Requirements for other states vary.

A fiduciary income tax return is used to compute an estate's income tax. The executor or administrator of an estate must file a federal fiduciary income tax return (Form 1041) for each fiscal year that the estate's income is $600 or more, or if a beneficiary of the estate is a non-resident alien. Local fiduciary income tax rules vary by state.

Gather information. Have the following information handy before meeting with your lawyer. It will save you time.

Make a list of the names, addresses, ages, and Social Security numbers of all next of kin and people receiving bequests under the Will. Tax identification numbers of charities can be obtained by calling their corporate offices or visiting their websites.

Gather copies of all recent bank and brokerage statements in which the decedent's name appears, including joint accounts and those for a named beneficiary. If an estate tax return has to be filed, you will need copies of the statements covering the month of death.

In addition, obtain all stock certificates, bonds, and savings passbooks. Photocopy everything. If an estate tax return is required, securities, including accrued dividends and interest, will have to be valued as of the date of death. If an estate is taxable, it will also have to be valued six months after death, which is the alternate valuation date. The amount subject to estate tax is the smaller of the date of death and alternate values.

Assets passing to a surviving spouse or charitable organizations are not taxable.

Evaluation Services, Inc. is a wonderful company in Old Tappan, New Jersey that specializes in valuing securities for estate tax purposes. Their fees are modest and well worth the money. Fax or email them a list of the decedent's securities and date of death. They'll send you a valuation statement within a few days.

Alternatively, if the decedent's securities are held at a financial institution, you can ask the institution's account executive to value the securities. Make sure that the executive is familiar with estate tax valuation rules.

If the decedent owned a safe deposit box, you will have to report its location on the estate tax returns. If the decedent held the box individually (no co-owner or deputy), you will not be able to open the box without a court-issued Certificate of Letters Testamentary or Letters of Administration. Inventory the box's contents and photocopy all financially related documents. Most states, including New York, require the fiduciary to file a report with tax authorities.

Marshall assets. This step involves collecting the decedent's assets and opening estate accounts. Notify all financial institutions of the decedent's death and provide them with a certified copy of the death certificate.

Death certificates can be obtained from state or city vital records departments. In addition, funeral homes can order death certificates on behalf of their clients.

After being notified of a customer's death, a financial institution will place a hold on the decedent's accounts. No further transactions will be permitted without special authorization.

You should never write checks on, or make deposits to, a deceased person's account, even if you are a joint tenant or have a power of attorney. Wait until all checks written prior to death clear, and then provide the account officer with the documents needed to close the account.

Inform the decedent's account manager if the decedent received direct deposit of Social Security or pension payments. Any payments made after death will have to be returned.

Ask the financial institutions for their requirements for closing any accounts. For joint accounts or those payable to a named beneficiary, you'll need a certified copy of the death certificate and a letter of instructions or a withdrawal form. For funds payable to the estate, you'll need to furnish the institution with Letters Testamentary and a copy of the decedent's Will, or Letters of Administration.

An account executive will handle the transfer of brokerage accounts to beneficiaries. You'll usually have to complete Stock Powers and Affidavits of Debts and Domicile. Check with your account executive for additional requirements.

If you have individual securities certificates, you or your lawyer will have to locate the transfer agent for each security in order to obtain the necessary paperwork. Contact the securities transfer department of the company or governmental entity for specific transfer requirements.

Open an estate checking account to pay the decedent's debts and administration expenses. Administration expenses are post-death expenditures for settling a decedent's estate. They include items such as debt interest; home maintenance expenses; out-of-pocket disbursements; and appraisal and lawyer's fees. Keep copies of the funeral bill and other receipts.

Deposit in an estate bank account all checks payable to the decedent that were due prior to death but received after death.

It is important to keep accurate records because debts and administration expenses are deductible on estate tax returns. Some administration expenses are also deductible on fiduciary income tax returns. Funds due the decedent but paid after death must be reported as assets on estate tax returns. If the returns are audited, you'll have to document the estate's assets and deductions.

An estate account requires a federal taxpayer identification number. A TIN can be ordered using a Form SS-4, which is downloadable from the IRS website. However, attorneys who practice in this field usually have authority from the IRS to assign identification numbers to estates.

To collect insurance proceeds, you'll have to furnish the insurance company with the original policy and a certified copy of the death certificate. Contact the insurance company for further requirements. If you're filing an estate tax return, request a Treasury Department Form 712, which gives a detailed description of the policy and a breakdown of how the proceeds were calculated.

For privately held corporations and limited partnerships, contact them directly for transfer requirements and valuation information.

Arrange for appraisals. Since appraisal is an art and not a science, it is a favorite item for examiners on audit.

If the decedent owned a business, have a qualified accountant or appraiser prepare a formal appraisal report. The report should have a detailed description of the business, including size, age, inventory, balance sheet data spanning several years, and a statement of how the value of the business was computed. An affidavit of the appraiser's qualifications should also be included.

Formally appraise all real property of significant value that is not being sold. The decision of whether to obtain a formal appraisal is a business judgment. A summer home in a rural area worth $50,000 would probably not require a formal appraisal. A real estate broker's letter would usually be sufficient. But a $2 million cooperative apartment in New York City would almost always require a formal appraisal.

A formal appraisal of real property includes a precise description of the parcel's location and size; comparable sales data; photographs; and an affidavit of the appraiser's qualifications. For properties being sold, you can provide the tax authorities with a copy of the sales contract instead of an appraisal.

According to the instructions for Form 706, a formal appraisal is required for individual items of artistic or collectible value exceeding $3,000, and for collections totaling over $10,000. You can estimate the value of items under $3,000 without getting an appraisal.

Prepare and file tax returns. Unless you are a trained accountant or tax preparer, hire a competent professional to prepare the decedent's final income tax returns, and any estate tax and fiduciary income tax returns. Many trusts and estates lawyers prepare the returns themselves or have people on staff that specialize in this work.

Estate tax returns are due nine months after death. Federal and state authorities usually issue closing letters about nine months after the returns are filed.

Fiduciary income tax returns are due three months and fifteen days after the end of the estate's fiscal year.

Tax authorities often issue six-month extensions of time to file returns. Your lawyer can prepare the necessary forms for requesting extensions.

Distribute Property and Prepare Accounting. Before distributing any property to a beneficiary under the Will, you should obtain a signed and notarized Receipt and Release Agreement from the recipient. This is a boilerplate document easily prepared by a lawyer. In the Agreement, the recipient acknowledges receipt of the bequest and releases you from further responsibility.

There are two types of estate accountings, formal and informal. Formal accountings are filed in court. For estates of significant size, they contain detailed information about estate transactions. At the end of New York estate administration, the Surrogate's Court requires the filing of an Inventory of Assets Form or a copy of Form 706, and an Estate Status Report indicating how much of the estate has been distributed.

Informal accountings are filed outside of court. Unless an accounting is very simple, it should be prepared by a fiduciary accountant or an experienced legal assistant under attorney supervision.

Small New York estates require the filing of a simplified accounting in surrogate's court at the end of estate administration.

Accountings prevent disputes among estate beneficiaries. If there are multiple executors or administrators, you should agree on a division of labor in order to avoid misunderstandings. If the Will gives you discretion on how to distribute property, discuss the distribution with the recipients beforehand to avoid disagreements.

Although estate administration takes practice and patience, following the above guidelines will make your job less taxing. Good luck.