As the executor of an estate, also called the Personal Representative in Maryland (hereinafter referred to a PR), you have certain legal obligations and a fiduciary duty to take certain actions, or inactions, on behalf of the estate. Otherwise, you may be held personally liable to the beneficiaries of the estate. Below are 12 mistakes to avoid when acting as Executor for probate purposes.
THE PROBATE PROCESS:
To put it simply, probate is the legal process of establishing the validity of a Will and ensuring that distribution is properly made pursuant to that Will. In Maryland, it is the responsibility of the Register of Wills to appoint personal representatives to administer decedents’ estates and for overseeing the proper and timely administration of these proceedings. The probate court, called the Orphans’ Court in Maryland, makes sure that the deceased person’s creditors are paid through estate settlement and that anything left goes to the deceased’s beneficiaries, either pursuant to a Last Will and Testament or pursuant to the laws of Maryland.
Unfortunately, the probate and estate settlement process can be complex, depending on the size and nature of the assets to be administered, the number of parties involved in the probate, estate settlement process, number of parties involved and how well they get along, and many other factors. Estate matters may be even more difficult when the family is grieving and under a great deal of stress.
Many people have come to our office with horror stories of things gone wrong in an estate. As the Personal Representative or Executor, you may be legally responsible for:
- Filing the will,
- Filing pleadings and notices with the Register of Wills,
- Notifying the beneficiaries,
- Filing inventories,
- Closing the affairs of the decedent,
- Paying certain claims,
- Filing tax returns,
- Paying final income taxes, and
- Paying any estate taxes that are due.
All of these items must be carried out in accordance with the person’s will and/or according to the estates and trust laws of Maryland. If you are not familiar with the process, it can be quite overwhelming. The Probate Attorneys at Frame & Frame have been assisting families with these complex and time-consuming processes for over 65 years to take the weight off your shoulders. Below are a list of Mistakes to Avoid When Acting As Executor for Probate.
MISTAKE #1: WAITING TOO LONG TO OPEN THE ESTATE
This happens much too often and often at a cost to the estate and ultimate beneficiaries or heirs. Part of your job as the personal representative is to open the estate within a reasonable time after the person’s death. You either do not know that you are required to open an estate or figure that it will all go away if you do nothing. It will ultimately catch up to you. As time goes by, bills and taxes continue to accrue, creditors start calling and heirs become impatient. Waiting too long can cost the estate money, which losses are ultimately passed on to the heirs. Your role is to administer the estate, such that it moves forward, the assets are distributed and the estate is eventually closed. If you feel that you cannot effectively manage the estate or are not a well-organized person, then you may want to think twice about agreeing to be the executor to begin with. The loss of a loved one can be devastating but delaying the probate process just adds another layer of stress and pressure to your grieving process. Take time to mourn and take care of your family and then take action. The longer you wait, the greater the demands.
MISTAKE #2: FAILING TO ADVISE THE HEIRS OR BENEFICIARIES
As an Executor or Personal Representative, you have a fiduciary duty under the law. You must notify and update the heirs at various stages of the estate. The heirs will receive a notice from the Register of Wills that an estate has been opened, but very often a PR will start the probate process without communicating with the heirs, so that the first time that they are hearing about the estate is when they receive the notice from the Court. This can lead to mistrust and the misconception that you are doing something wrong. It is always best to be transparent and to keep the heirs reasonably informed and up to date throughout the process. Even if you ignore them, they will not go away. If an heir does suspect improper actions, even if not true, they have the right to file a petition to ask that you be removed as Personal Representative and replaced with someone else, either the successor named in the will or an independent person chosen by the Court.
MISTAKE #3: FAILING TO QUICKLY AND PROPERLY TAKE CONTROL OF AND PROTECT ESTATE ASSETS
This is especially critical for real estate. As part of your job as PR, you must immediately secure the real property against break-ins and trespassers, maintain property insurance, and protect against loss for nonpayment of taxes and mortgages. If you do not live near the city or state where the property is located, this may be challenging for you, especially if the curb appeal suffers and squatters take over. You should work with a good realtor that is experienced in selling probate and estate properties and can help you maintain the property and keep it in good repair pending sale. The agent should have a wide array of resources that they can recommend to help you with the repair and maintenance of the real property if needed. You must also take exclusive control of the estate’s cash and financial accounts and close out all credit cards. Any person who had access to accounts through ATM cards, debit cards or credit cards, must be denied further access to those accounts.
MISTAKE #4: NOT PICKING UP MAIL FROM DECEDENTS PROPERTY
This is easy one to avoid. As soon as you are appointed as the PR of the estate, you should contact the local post office and request that all mail be forwards to your address or to another address or Post Office box that you have access to. The reason for this is so that you don’t miss important notices and claims from creditors and/or lenders. Additionally, it can help to locate assets that the PR is unaware of. Unless statements and documents are sent electronically, you will receive bank statements, credit card statements and 1099s, which can help locate other estate assets, Lastly, if the mail piles up at the property, it could give burglars or squatters an indication that the property is vacant.
MISTAKE #5: GETTING GUIDANCE FROM THE WRONG PEOPLE.
Just because your best friend or cousin is an attorney, they may not be qualified to represent you in matters of probate and estate. You should hire an experienced estate administration and probate attorney who knows the process, knows his or her way around the probate court and when certain documents need to be filed, such a fiduciary tax returns. In addition, most estates require assistance from other professionals such as a realtor, tax advisor, and/or a financial planner. Not every CPA has experience with filing 1041 or 706 tax returns and not all financial planning advisors will know how to deal with the distribution of estate assets. Your probate attorney can often make recommendations for these resources. It is important that you pick a team of experts (not friends and family) that specialize in these matters.
MISTAKE #6: CONFUSING PROBATE AND NON-PROBATE ASSETS
When handling an estate, the PR must differentiate between the probate assets and the non-probate assets. Probate assets are assets that were owned by the decedent in his or her sole name at the time of death or owned as tenants in common, if it is real property. To determine the legal ownership of real property, you must read the deed which conveyed the property to the decedent. There are several ways that real property can be titled and it will determine if the property passes through the estate or not. Assets that are titled jointly with another person, as joint tenants with rights of survivorship, will generally become the property of the surviving owner according to the multi-party account statute. Other assets that have beneficiaries named, such as life insurance policies, retirement accounts, CDs and payable on death or transfer on death accounts. It is important to refer to the account documents to determine the ownership as of the date of death to decide whether the assets will be subject to the probate process or is automatically distributed by operation of law or by contract.
MISTAKE #7: NOT KNOWING HOW TO PROPERLY VALUE THE ESTATE ASSETS
It is imperative that the estate assets are properly valued. This, in itself, can be a complex process. For personal property, generally you will need a certified or court accepted appraiser to appraise the value of the property. That can include the furniture, household items and all the “stuff” in the home. It can also include vehicles. Regarding real property, a decision has to be made as to whether an appraisal is appropriate or whether a comparative market analysis or the state tax assessment should be used as the basis for the value as reported on the inventory. This decision will involve a discussion of the potential tax liabilities and the best way to avoid paying unnecessary taxes.
MISTAKE #8: FAILING TO PREPARE AN ACCURATE INVENTORY OF ASSETS
If the decedent owned any assets in his or her sole name, including real property, vehicles, bank accounts, stocks or personal property, the only method to transfer or convey the asset to the heir is through the probate or estate administration process. When filing an Inventory, it is important to accurately report the assets that are properly included in the estate. The Inventory is a snapshot that tells the Court what assets the decedent owned as of his or her date of death and how much those assets were worth as of that date. The PR is required to report all assets in the name of the decedent, no matter what type of asset it is, with a few exceptions. The PR needs to understand which assets pass through the estate and which assets do not (non-probate assets). Once appointed, the PR may be obligated to investigate and locate assets of the decedent, as it is not always that clear what the estate assets are. Is there real property, specific items to be passed to specific people, oil, gas or mineral rights that need to be disposed of, or rental income to collect? This can be a daunting process but still necessary.
MISTAKE #9: NOT KEEPING ACCURATE ACCOUNTING RECORDS
As the PR, it is extremely important to keep accurate records as to what is deposited into the estate account and what is disbursed from the account. You will be required to file administration accounts, which report to the court all additions or losses of the estate and all expenses of the estate. If you fail to keep accurate records, it will be very difficult to prepare the accountings and be able to itemize the expenses, account for any gains or losses, dividends and interest on investments. Your estate attorney will handle all of this for you but you will still need to provide the attorney with all of the records and ledgers relating to the estate account in order to properly prepare the administration accounts and make final distributions. Sometimes accountants can also assist you with the preparation of the administration accounts. When the estate is ready to close, a final account is filed with the Court, which the Court must review and approve prior to final distribution. The numbers must be accurate to the penny or the final account will not be approved. In cases where the records were not properly kept, the beneficiaries have the right to file objections to the final account. If this happens, the court will set the case in for a hearing to determine whether the account is correct and order corrections or modifications. This can delay the probate process for many months when it should have taken half that time or less.
MISTAKE #10: DISTRIBUTING ASSETS OF THE ESTATE PREMATURELY
Often a PR will begin making distribution of assets of the estate before the estate is even open. This is prohibited. The Will may state that a vehicle should go to a certain relative or antique furniture to a friend. If the asset is distributed prematurely, this could be a huge problem. Depending on the instructions in the Will, the estate may be responsible for paying the inheritance taxes or the person inheriting the asset may be responsible for those taxes. If the asset is distributed before the tax or expense in collected from the heir, the estate may not be able to recover it later on. Additionally, creditors have a specific amount of time to file claims against the estate. If the estate has limited cash or insufficient funds to pay those claims, they may be disallowed or they must be prorated. Time for filing claims expire, there may not be enough to cover the claims and the PR may become personally liable for those debts.
MISTAKE #11: PAYING DEBTS AND BILLS OF THE DECEDENT IN THE WRONG ORDER
When an estate is opened, a creditor has 6 months to file a timely claim in the estate requesting payment of the balance due. If the claim is valid, not barred by the applicable statute of limitations and filed in a timely manner, then it may have to be paid. Per Maryland law, there is an order of priority when paying the expenses, final bills and debts of the decedent. If bills or debts are erroneously paid from the estate or paid in the incorrect order, the PR may be held personally liable to the creditors or to the beneficiaries or heirs for those monies paid out incorrectly.
MISTAKE #12: FAILING TO TAKE FINAL STEPS TO CONCLUDE THE ESTATE
Once the real property is sold, the bank accounts liquidated, any necessary tax returns are filed and all claims and expenses are paid, it is time to close out the estate. In order to close a regular estate, which is an estate that has more than $100,000 in assets (or more than $50,000 in assets if the spouse is the sole heir) a final administration account must be filed which shows additions to and losses from the estate, the final expenses of the estate and the final distributions as directed in the Last Will and Testament or, if there is not Will, per the Maryland laws of intestacy. The account has to be reviewed and approved by the Orphan’s Court. Once the Court approves the final account, the PR must wait an additional 20 days in order to allow exceptions to be filed. Once that period expires, then distributions may be made. It is strongly advised to mail distribution checks to the beneficiaries by certified mail so that you have a record that they actually received the distribution, or else have them actually sign a receipt for the property or money that they receive. If real property is not sold but is conveyed to a beneficiary in kind, the PR must make sure that a deed of distribution is prepared and recorded with the local land records office. If this final step is not taken, then there could be serious problems in the future when the real property is ultimately sold, which may cost the estate significant legal fees and court costs in order to remedy. The PR would be personally responsible for these additional costs and expenses, as all other estate assets would have been previously distributed from the estate.
BEWARE OF POTENTIAL PERSONAL LIABILITY:
Take caution to fulfill your legal obligations and duties as the PR. If you mishandle the estate funds, use them for your own benefit or fail to properly protect and account for the estate assets, you could be personally liable to the beneficiaries or heirs of the estate. Many people are not aware of this and the fact that your personal assets and money can be at risk if you make mistakes or mismanage the estate. The court could hit you with penalties and sanctions in order to fix any damage that was caused.
OBTAIN LEGAL GUIDANCE
While these mistakes to avoid when acting as executor for probate may be helpful, being an executor or PR of an estate is an extremely important job. It can be very overwhelming and time-consuming. It requires good organization and knowledge of the probate process and what it involves. The probate process can put a lot of strain on you, especially when you are grieving the loss of your loved one, as well as taking care of your family, working your regular job, and dealing with your everyday obligations. If you are not sure if you are up to the task or don’t have the time to perform all of the duties that are required, obtain legal guidance. You can avoid much of the stress, anxiety and pressure that goes along with the obligations of being a PR by hiring Frame & Frame to assist you with this process. Our experienced estate planning and probate attorney’s can guide you smoothly through the process and handle take the weight off your shoulders. We have been providing these services, to families in our community, for over 65 years. Contact us today to schedule a private consultation.
To learn more about probate and estate administration, the following resources may be helpful to you.