When an individual dies, assets of the decedent may be transferred based on how their titled or a named beneficiary. For example, assets held as joint tenants with right of survivorship pass directly to the other joint owner. Similarly, IRA accounts pass directly to the named beneficiaries as do payable on death accounts, transfer on death property, and most life insurance and retirement benefits. For other assets that do not have a named beneficiary, an estate/trust Administration process is necessary. In the case of a person who dies with a will, that process is called probate and requires proceedings in probate court. In the case of a person dying with assets in a trust, then probate is avoided and the estate/trust administration duties fall to the successor trustee named in the trust, typically a family member.
It is the probate court's responsibility, as it is the successor trustee's in the case of a trust, to ensure the assets are collected, maintained, and distributed among the decedent's heirs, beneficiaries, and/or creditors according to the direction of the decedent as expressed through a will or the trust. This process is known as estate/trust administration of a decedent's estate.
After the death of an individual, an estate may be opened by any interested person filing an application to administer the estate. This is usually done by the executor, a family member named in the will. In the case of a trust, the estate/trust administration is handled privately, not involving the court and can often be accomplished in a matter of weeks, not months. That is one advantage of estate/trust administration with a trust--speed. The other advantage of estate/trust administration is privacy. While matters involving a will involve the court as explained above, these matters become public. Estate/trust administration handled when the decedent has a trust is handled privately by a family member or someone close to the family and there is no public record.
In both cases, will and trust, the estate/trust administration process involves the following steps:
Application for authority to administer the estate and admit the will to probate if one exists;
Appointment by the court of a fiduciary (in the case of a will);
Gathering assets and obtaining appraisals as required;
Filing the inventory in a timely manner;
Payment of creditors;
Filing of estate and income tax returns and payment of taxes, if any;
Distribution of remaining assets to beneficiaries;
Closing the estate by filing a final account or certificate of termination in a timely manner.
While it's usually the case that estates are closed once all assets are distributed, in the case of a trust, the estate/trust administration process can continue for years. For example, the decedent may have specified in his trust to have $20,000 distributed annually to his 20-year-old grandson. The would require the trustee to administer the trust over the next 60 years or so. While this is not a difficult job by the trustee, the desires of decedents who use trusts can be more involved and require estate/trust admininstartion over decades.
Note that the eatate/trust administration issues have no impact on estate taxes due. Whether the decedent has a trust or will, the same estate tax impact can be accomplished in the design of the documents. Avoiding probate does not mean avoiding estate taxes. Assets left in trust are subject to estate and inhertiance tax just as assets left through a will. Avoiding estate taxes requires that tax and estate planning be done well before death, coordinated by an experienced retirement advisor.
If a decedent has no will or trust, the estate/trust administration process is similar as if a will had existed. However, the State may decide on the distribution of certain assets because there is no documentation of desires from the deceased.
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