Last Will & Testament 101

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Settling Legal Wills

The last will and testament will not settle over night.  Beneficiaries often find themselves at odds over the disbursement of property after the death of a decedent.  Sometimes it’s over the property or the value of the property itself.  Sometimes it’s just that fact that it cannot happen immediately.  Most beneficiaries think that once the services are over, it’s time to split up the decedent’s property.  It doesn’t happen quite that way.    

If there is no will and therefore, no executor, an administrator must still be appointed.  Though there are significant differences between these two positions, they will be referred to as the same for our purposes here.

The executor of the will has a great number of duties and in all fairness, most executors haven’t been down this road before.  They really need some legal help to make sure that they have followed the letter of the law and protected the assets of the estate.  

Even if most of the duties are to be handled by the executor, we recommend that you consult with an attorney on a regular basis to make sure that the whole process stays on track.  This can prevent serious problems down the road with beneficiaries and the state and federal taxing authorities.

By law, the executor actually becomes the owner of the decedent’s property and retains ownership until the property is disbursed.  There are however, other legal duties to the beneficiaries and the executor must take all reasonable measures to obtain the decedent’s property and keep it safe.  This can include a large number of duties such as making sure that property is adequately insured, that taxes are paid, and that there are no encumbrances placed on the property.

To put this in more simple terms, even though a family member has bequeathed a car to you, it becomes the property of the executor until the property is actually disbursed to you.  The executor must make sure that the property taxes, payments, and insurance are paid and must use every other method reasonably available to make sure that there isn’t any significant loss to the value of the car.  If you take the car before it’s actually turned over to you, you could be charged with theft.

If there are such claims to the car such as property taxes or payments, the executor cannot distribute the car to you until those claims are settled.  This is one reason that certain assets take longer to disburse than others.  Property may have to be liquidated to pay off the car loan balance or other similar encumbrances.  It’s quite possible that the car itself will have to be sold in order to pay off the debt on the car.

Fees and debts that are owed to creditors must be paid before any other property may be disbursed.  All properties other than those that have an obvious face value such as insurance policies, bank accounts, and stock portfolios need to be professionally appraised.  

This is to ensure that the value isn’t being misrepresented for estate tax purposes or to the benefit of the executor or any beneficiary.  By law, anyone that has a claim against the estate has one year to file that claim from the date of publication of the estate notice.  Such claims may include remaining medical bills, funeral expenses, utility bills, or any other legitimate claim.

Above all else, the executor will be required to file and pay all federal, state, and local taxes on behalf of the estate.  Again, it is recommended that this job be done with the cooperation of your estate attorney and someone that is trained in the filing of such returns.  The IRS can come back a couple of years later to claim unpaid taxes.

There are quite a few techniques and strategies that may be employed to save the estate money including deducting certain administration expenses, electing a fiscal year over the calendar year, and many other elections.

The average person probably isn’t going to know a great deal about these issues and there are new ones that come along regularly.  It is quite likely that the cost of obtaining professional assistance will be saved.  Using companies or individuals that back up their work with financial guarantees can also save a tremendous amount of concern and potential interest and penalty costs if a mistake is found.

Death taxes, both state and federal, must be paid within nine months of the date of death unless the estate can qualify for an extension. Often the actual tax is paid at the nine month date but the tax returns themselves are put on extension. Extensions are available for six months, which would make the return filing 15 months after the date of death.

Unlike 1040s, every single death tax return is looked at by the IRS. The taxes are not settled until the taxing authority affirmatively accepts the return and the tax and communicates this to the executor.

During the period of administration, the executor must preserve the value of the estate and administer it for the benefit of the beneficiaries. The executor collects income from investments, business interests and real estate. The collected assets must be invested prudently and, in many cases, estate assets must be sold.

These sales are handled by the executor. The executor accounts for all transactions, and when all creditors have been satisfied and all taxes paid, distributes the estate to the beneficiaries in accordance with the terms of the will.

An executor is entitled to a fee for the substantial work and responsibility involved. The amount of the fee will depend on the amount of work performed.

Sometimes an individual executor will do a tremendous amount of work, and sometimes he or she will hire professionals who will do almost all of the work.

Usually, the executor hires a lawyer and possibly an accountant to help with the estate settlement. Often the lawyer who wrote the will is hired, but that is not required.

The executor is free to hire legal counsel of his or her own choosing. The lawyer advises the executor of his or her duties and the due dates for various actions, assists with the preparation of tax returns, resolves disputes, makes tax elections and so forth.

The taxation of trusts and estates is a very complex matter and a trained professional can often save the estate substantial dollars in taxes with good post-mortem tax planning.

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