April, 2006

Estate Probate – III

Collecting & Liquidating Assets

Let’s continue our hypothetical where your great uncle Leo died, naming you as Executor and primary beneficiary under his Last Will & Testament.  So far you have had the will allowed, been appointed the Executor, and filed an Inventory of the estate’s assets with the court.  It is now time to move into the middle stages of the probate process, where you collect, liquidate and reinvest the estate assets until you are ready for the final distribution.

When collecting the assets, keep in mind that you are only collecting those assets that belong to the estate.  Uncle Leo had to own it in his own name and his name alone.  If he owned the asset jointly with another person, or owned it through a trust, then the property passes outside of probate.

Collecting all the property can be complicated if Uncle Leo failed to leave behind a detailed list.  Fortunately, most assets can be discovered by checking the mail.  Any savings or investment accounts Leo had will mail him a statement on a monthly or quarterly basis.  Real estate tax bills are also mailed quarterly.  You should also check with Leo’s employer who may have information on retirement accounts, death benefits, and any other work-related benefits payable to his estate.  Other sources of information include the IRS for Leo’s old tax returns; the Secretary of State’s Abandoned Property Division for any unclaimed assets; and the Registry of Deeds, which will show any property rights he had.  It would also be worth your time to interview Leo’s family members, friends, co-workers, neighbors and bartender.

Once you’ve figured out exactly what your uncle owned, you have to liquidate and reinvest the property as applicable.  “As applicable” means you may want to leave the property alone for now if it’s (1) already in a good investment, such as a CD that pays a high interest rate; (2) is a specific bequest that requires the asset remain intact, such as real estate that is intended for someone to live in; or (3) is too much trouble to liquidate, as in that CD which probably has a high penalty for early withdrawal. 

Note that you only liquidate items that were specifically bequeathed to someone if the rest of the estate is insufficient to pay all the estate debts.  But if you do run into a situation where you won’t have enough money to pay the debts from the general funds, then you will have to start liquidating the Specific Bequest property to pay the bills.  You can sell the property and take what is needed out of the net proceeds, or “sell” the property to the person who was supposed to get it for however much money is needed.  For example, let’s say Uncle Leo’s estate has $10,000 in the bank, and a house on Main Street worth $300,000, which was specifically bequeathed to you.  If the estate’s debts total $15,000, then the $5,000 shortfall will have to be made by selling the house to you for $5,000, or selling it to a third party for $300,000, leaving you with $295,000 in cash.

Whenever you do liquidate something, place the sale proceeds into an account set up specifically for the estate, under the estate’s own name and tax I.D. number.  The size of the estate will determine whether you can invest it in a simple interest bearing account, or if you need to have a more comprehensive investment plan.

Next month we’ll pay the bills and close out the estate.