Estate Administration:
Recipe for a Smooth Administration

The recipe for a smooth estate administration includes the following ingredients:

organization of financial data
careful and thoughtful estate planning
clear legal documents
loving-agreeable beneficiaries

Stir the ingredients, and you will probably end up with a smooth estate administration.

By now you are probably asking, "But what is estate administration?"

Estate administration is:

A) A pleasurable experience with lawyers, accountants and corporate fiduciaries
B) A small headache
C) A sharp pain in the back
D) A living nightmare designed by the decedent to get back at the survivors

While you may think "B," "C," and "D" are the most appropriate answers, believe it or not, it can actually be "A!"

Is estate administration complicated? No..., yes..., maybe... it depends.

This article will address the meaning of estate administration and the complexities involved.

The term "Estate Administration" has two possible definitions, depending upon whom you are dealing with:

1. Estate Administration can refer to the administration of the probate estate, i.e., what assets you own solely in your individual name (not in trust, joint name, etc.) at the time of your death. Your Last Will and Testament governs how the probate assets shall be disposed.
   
   
2. In tax parlance, Estate Administration includes the administration of all assets owned by you at the time of your death whether subject to probate or not. Avoiding probate administration does not equate to avoiding estate administration when you have a taxable estate.

Probate

Regardless of the size of your wealth, you have an "estate." After your death, the person named to handle your financial affairs (i.e., your personal representative under your will and/or your successor trustee under your revocable living trust) will determine (with the assistance of an attorney) what steps are necessary to administer your estate.

The estate may have to go through the judicial process of probate and may be taxed by both the federal and state government. It is very important that you understand that probate has nothing to do with estate taxes and vice versa.

On the contrary, the avoidance of estate taxes does not necessarily mean that no probate administration is necessary. Probate is necessary when you die with any assets titled solely in your individual name which must pass under your last will and testament. In a nutshell, the probate administration is simply the court's supervision of the marshalling of your assets by your personal representative. The process is time consuming and relatively expensive.

Estate Tax

The estate tax is a tax levied on the decedent's gross estate. It may be minimized by advance planning and some post-mortem planning; however, the estate tax is not eliminated simply by avoiding probate. Therefore, if your estate is over the taxable threshold, then federal and state estate tax returns will be due and the estate administration process will commence (for estate tax purposes).

Estate Administration

There are three basic phases of estate administration: the beginning, the middle and the end. How profound! The complexity of the estate administration is based on the size of the estate, the type of assets, the location of the assets, how the assets are titled, the number of beneficiaries, the relationship of the beneficiaries to the decedent and to one another, and the clarity of the estate planning and other documents that affect the distribution of the estate. Advanced planning can substantially reduce the complexity. A pre-mortem audit of your financial data and family situation may reveal possible problems that can be avoided in your estate planning documents.

The following is a brief outline of the role of your personal representative, successor trustee, or family administrator in administering your estate through the three phases:

Phase One: Review estate planning documents

• Determine who is in charge (party named by you or by law)
• Gather financial information
• Establish the beneficiaries and other interested parties
• Provide proper notice to all above parties
• Determine necessity of probate administration; if so, proceed to open probate estate as soon as possible
• Determine if estate will be subject to any federal or state estate tax

Phase Two: Notify all creditors (if necessary under probate or otherwise desired)

• Determine value of all assets
• File inventory (probate only)
• Determine valid debts (claims) of estate and satisfy same
• Accountings
• Analyze necessity for post-mortem estate planning
• Federal and state tax returns: final federal income tax return; federal and Florida (and other states, if any) estate tax returns; federal estate income tax return; Florida fiduciary (estate/trust) intangibles tax return; and possibly more.

Phase Three: Make necessary distributions (set up trusts, etc.)

• Obtain receipts from beneficiaries
• Obtain necessary waivers from federal and state government
• Close estate and formally discharge estate administrator (i.e., personal representative in probate administration)

Effective estate planning can substantially reduce the complexity of estate administration. It will also foster a spirit of cooperation among the beneficiaries. Have patience. Your efforts will save your heirs a considerable amount of time and money.

Good luck!