Click to download (pdf) | By Attorney Susan M. Mooney
Many people do not realize the work and complexity that can be involved in being a Personal Representative of an Estate. The individual making out the Will usually chooses a spouse, child, another close relative or friend, their attorney, or a bank to serve as their Personal Representative. Personal Representatives, as fiduciaries, must observe a strict standard of care in carrying out their duties and protecting Estate assets. Here is a partial list of these duties.
- Get the Will probated. This usually involves having a lawyer petition the Court to approve the Will and have the Personal Representative appointed. Once this step has been completed, the Personal Representative is empowered to administer the Estate, which might include any of the rest of the items in this list, depending on the size of the Estate. In the event there is no Will, then a Petition must still be filed with the Court to appoint an Administrator to administer the Estate.
- Collect or “marshal” the assets, so that they can be distributed according to the terms of the Will, or if no Will, in accordance with the laws of the Commonwealth. Finding assets often can be a challenge. The Personal Representative must find all car registrations, stock certificates or account statements, mortgage papers, deeds, pension benefit papers, IRAs, checking and savings account papers and life insurance, to name a few. (Could you easily find these for yourself?)
- Make sure the assets are valued. A valuation is needed for Estate tax purposes, but may also be done for the benefit of the heirs. Depending on the tax law in effect at the date of death, the heirs inherit the assets at a tax basis that is equal to the value at the date of death. This “stepped-up basis”  can be a valuable tax benefit, so the Personal Representative (or Administrator) must have the assets valued and keep a record of the values.
Example of step-up in basis rules, if applicable: Your niece inherits 1,000 shares of stock from you. You only paid $20 per share, but the stock is now worth $100 a share. If you had sold that stock during your lifetime, you’d have a huge capital gains tax to pay (about 20% of the gain assuming a 15% Federal tax and a 5% State tax). But if the stock is not sold during lifetime but when your niece inherits it, she may get a “stepped-up basis” – the date of death value of the stock ($100 per share); if the price goes up after your death and she sells it she will pay less capital gains tax than you would have paid, if she sells it for the $100 per share date of death value she will pay $0 capital gains tax if the stepped up basis rules are in effect at the date of your death.
Assets that are not readily valued, such as business interests, real estate, art collections, etc. may require an appraisal.
- File the necessary tax returns, Federal and State, and pay the taxes. Taxes may include, a) Federal Estate tax and State Estate tax; b) Federal and State Income tax for the deceased; and c) Federal and State Income tax for the Estate (otherwise known as Fiduciary Income tax). Larger, more complex Estates usually must file all three (3) of these.
The general rule is that if the taxable Estate is greater than the Estate tax limit, a Federal Estate tax return must be filed. The Federal Estate tax will apply to Estates valued at $5.0 million dollars or more for date of death in Year 2012. In Massachusetts, an Estate tax return must be filed for Estates valued at over $1 million dollars, regardless of year of death. The valuation of assets we discussed above is needed for the Federal Estate tax and State Estate tax filings, if applicable. Federal and Massachusetts Estate taxes are due and payable nine (9) months from the date of death, if applicable. For purposes of calculating the value of an Estate for Estate tax purposes, all Probate assets, as well as non-Probate assets (such as joint accounts, life insurance, 401Ks, IRAs, or other assets with direct beneficiaries) are included.
The Personal Representative must also file the decedent’s final Income tax return, Federal and State, and make any necessary tax-related elections by the applicable April 15, Income tax filing deadline. Additionally, the Estate, as a separate entity, may also need to file Fiduciary Income tax returns if the Estate earnings exceed a certain limit.
- Cancel credit cards and other accounts, and inform various persons of the death.
- Make an inventory and accounting of the Estate assets (this often necessitates professional help).
- Determine and pay the Estate debts.
- Distribute and/or transfer the Estate assets in accordance with the Will, or if no Will, in accordance with State law.
The Personal Representative may also need to sell and/or manage the Estate assets. Of course, the amount of work involved will depend on the size and complexity of the Estate and its assets. In most cases, assets will be liquidated before distribution. If you are appointed Personal Representative, the assistance of suitable professionals, such as appraisers, accountants, attorneys, real estate brokers, etc. can make your job more manageable.
Step-up in basis may or may not apply depending on tax law in effect at date of death.