ESTATE ADMINISTRATION

Proper administration of a decedents estate involves a variety of steps. When an individual passes away, an executor is typically appointed in a will to handle the administration of the estate. In the absence of a will, an administrator is appointed. Regardless of title, either is the representative of the estate and is legally responsible to ensure that all necessary steps are taken to comply with the laws regarding creditors, taxation, and distribution to beneficiaries.

In New Jersey, the executor must initially file the will for probate with the Surrogate of the county in which the decedent resided at the time of his or her death. After this step is taken, the executor is charged with the responsibilities of opening an estate account from which any claims against the estate are to be paid and to retitle the assets from the decedents name into the name of the estate. In order to undertake these steps, a tax identification number must be acquired because an individuals social security number becomes invalid upon death.

In addition, the executor should file a variety of forms with the Internal Revenue Service and the Surrogate to ensure that he or she is not held personally liable for any debts of the estate. There are three primary taxes which are levied upon an individuals death: (1) the federal estate tax, (2) the New Jersey State Transfer Inheritance Tax, and (3) federal and state income taxes. The executor needs to determine whether or not the first two taxes are to be paid. However, the income taxes must always be addressed by an executor on income generated on estate assets between the decedents date of death and the date of distribution to beneficiaries.

In order to properly conclude an estate, an accounting must be given to all beneficiaries and a release and refunding bond signed by each beneficiary which is then filed with the Surrogate in which all beneficiaries acknowledge the receipt of their share of the estate, discharge the executor from further obligation to the estate, and accept pro rata responsibility for any proper debts imposed upon the estate subsequent to receiving distribution.

In many cases, a trust is established either as part of a will or as an independent document. The trustee has a very serious responsibility to all beneficiaries of the trust. The trustee is responsible for complying with the Prudent Investor Act. This law requires that the trustee invest the trust assets prudently. Prudently means that not only must the assets be preserved but they must be invested for grown for the benefit of the beneficiaries. Non-professional trustees are best advised to delegate this function to professional trustees or trustee advisors. Family member can continue to serve as trustee under this arrangement.

Another law, which the trustee must comply, is the Principal and Income Act. Under this act, certain items are designated as income and other items are designated as principal. This is extremely important under trust law, as it will affect distributions to various beneficiaries.
Periodic accountings must be rendered by the trustee and they must comply with the Principal and Income Act.

In addition to these two laws, the trustee must file appropriate tax returns. These include federal and state 1041’s, which are income tax returns for the trust and K-1’s, which are given to beneficiaries to indicate income distributions.

An executor, an administrator and a trustee have significant personal liability to taxing authorities and to all of the beneficiaries of an estate. A good faith effort by the fiduciary to be fair and reasonable will not protect the fiduciary from this liability. Serving as fiduciary is a complex undertaking, which should not be attempted without professional assistance.

If you have any questions or would like to discuss your options you can contact me at (973) 652-7989 or email me at scbrennan.esq@gmail.com.