The task of administering a probate estate are as follows:
Soon after receiving your Letters and once you have a good idea of the liquid assets in the estate and that all direct deposit transactions have been accounted for, you should:
Each institution seems to have its own preference for the form of holding title. For example, if Descendant is George Washington and his Personal Representative is Martha Washington, two popular variations are as follows:
You will need to check with each institution as to its preference. You should make all payments on behalf of the estate by check from the estate’s checking account and make sure that you keep an adequate record of the checks that you have written, most easily done by saving the monthly statements from the checking institution so long as those statements show not only the check number and amount of the check but also its payee. You may have advanced funds on behalf of the estate, such as the $200 Court filing fee and possibly $100 or more for publishing the Probate Notice to Creditors. An appropriate first check on the estate’s new checking account would be to reimburse yourself for those funds advanced upon your delivery to yourself of the receipts for those advancements. You should not, however, pay any Creditor’s Claims that you may have against the estate — only reimbursement of funds advanced on behalf of the estate. Payment of any of your Creditor’s Claims will be dealt with later.
RCW 11.44.015 “requires” you to:
Note: Although the statute says the Personal Representative “shall” prepare an Inventory, practically speaking, preparing one is solely for your own benefit, as WA law no longer requires an Inventory to be filed with the Court. RCW 11.44.015(2) Exception: If a person interested in the estate requests one.
- Discover all the assets Descendant owned at death. See: Assets That Slip Through the Cracks.
- Take control over them, among other reasons to protect them for Descendant’s Heirs and Beneficiaries.
- Inventory them, at least informally.
- Categorize them either as a probate or a non-probate asset, revealing whether their transfer to Descendant’s Heirs and Beneficiaries may necessitate a probate proceeding, or whether that transfer may be made “outside of probate.” See: Determining Descendant’s Probate Assets
- If Descendant was married at death: Characterize them as either separate, community, or quasi-community property, revealing the extent to which Descendant’s surviving spouse has any marital interest in the asset. See: Determining Descendant’s Surviving Spouse’s Marital Interest.
Presumably by now you have discovered all of Descendant’s assets and taken control over them. Now, to the extent you have not already done so, the task is as follows:
requests in writing a copy of the Inventory & Appraisement after three months following your appointment, you are required to send him/her a copy of it within 10 days of your receipt of the request. RCW 11.44.015(2). If a person making such a request fails to timely receive the copy, he/she may complain to the Court (RCW 11.44.050), although the Court may grant an extension of time for up to six months to provide the copy for good cause shown. 2003 King County Probate Policy & Procedure Manual, § 5.2.
Timing: Complete the Inventory & Appraisement within 3 months after your appointment.
Overview of the Optional “Washington Probate Creditor’s Claim Procedure”
In the big scheme of things, here the legislature is balancing two interests:
- Creditors’ desires to be paid the debt due them, and
- Beneficiaries’ and Heirs’ desires to receive estate assets having clear title.
The compromise reached is that:
- The legislature has instituted a straightforward, although relatively rigid, statutory procedure for estates (as debtors) and creditors to follow, and provided that for those who successfully follow and complete it, four months later:
- Any creditor will have had sufficient time and opportunity to perfect his/her/its claim, and
- As for the assets that remain, the Beneficiaries and Heirs will receive clear title, assured that no creditor should be able thereafter to successfully pursue a claim against an asset to satisfy any of Descendant’s remaining unpaid debts.
- The procedure for identifying creditors involves:
- Publishing a Probate Notice to Creditors in Descendant’s resident county at death;
- Reviewing Descendant’s correspondence and records to identify possible creditors; and
- Sending a copy of the Probate Notice to Creditors to each such possible creditor, effectively inviting them to timely submit a Creditor’s Claim.
- The procedure for paying creditors involves:
- Paying creditors only following the proper and timely submission of a Creditor’s Claim.
Remember: This procedure, and especially publishing a Probate Notice to Creditors, is:
ENTIRELY OPTIONAL, UP TO YOU, & NOT REQUIRED BY LAW.
- Some effort,
- Four months of waiting for the Statute of Limitations to expire, and
- $100 or more to publish the Probate Notice to Creditors ($105 in King County).
By following this procedure, you reduce the time that the great majority of creditors have to make their claim:
- From 24 months after Descendant’s date of death,
- To 4 months after the date of first publication of the Probate Notice to Creditors.
What this means is that by following this procedure, when you distribute Descendant’s assets to his/her Heirs and Beneficiaries following the expiration of the 4-month period, they take those assets with virtually clear title, free of almost all potential claims — otherwise, the assets remain subject to potential claims for 2 years after Descendant’s death.
WASHINGTON PROBATE believes that the advantages of following the Washington Probate Creditor’s Claim Procedure in the great majority of cases far outweigh its effort and cost and urges you to follow it. All it takes is one dilatory creditor to make the $100 or so cost of publication a remarkably cheap investment.
Some introductory comments before going forward with the formal Creditor’s Claim procedure:
Now, let’s get on with the formal Creditor’s Claim procedure itself:
The Issue: Putting the world on notice that:
- Descendant has died;
- You have been appointed as Descendant’s Personal Representative; and
- Any creditor of Descendant has four months to present his/her/its claim against the estate or be barred.
The Probate Notice to Creditors is a form:
The Issue: Putting the State on notice that if any Medicare reimbursement is due, the State (just like any other creditor) has four months to present its claim or be barred.
Caution: The Notice sent to WDSHS (ie, Washington Dept. of Social & Health Services) is required to contain Descendant’s Social Security Number (“SSN”), but GR31 prohibits filing Social Security Numbers with the Court. Consequently, make sure that you place Descendant’s Social Security Number on the copy of any form you send to WDSHS but not on any form that you file with the Court.
Timing: Within 30 days of your appointment
The Issue: Identifying possible creditors of Descendant — so that you can send them actual notice of the same information as in the Probate Notice to Creditors.
RCW 11.40.040 provides the guidelines for identifying and notifying Descendant’s creditors. First, with “reasonable diligence”:
Timing: Soon after appointment.
The Issue: Sending to the possible creditors of Descendant identified in your review actual notice of the same information as in the Probate Notice to Creditors, effectively “inviting” them to make their claim or be barred.
Then, to complete the identification and notification process:
Timing: Within 3 months after first publication of your Probate Notice to Creditors. Strategically, you should send actual notice at the end of the 3rd month after first publication; by doing so, you:
Side-bar: How to ensure that you have made a reasonable review and sent actual notice to the possible creditors found in your review — see: Evidencing Your Reasonable Review.
Special Circumstance: You Are a Creditor — Making a Claim Against the Estate Yourself
The Issue: Has each creditor given notice of his/her/its claim according to law?
RCW 11.40.070 provides the requirements for the lawful presentation of a Creditor’s Claim:
The Issue: How do you lawfully respond to any creditor who has lawfully given notice of his/her/its Creditor’s Claim.
Lawfully presented Creditor’s Claims may be:
Timing (for all actions other than “holding”):
The Issue: Can you lawfully pay a creditor who has not lawfully given notice of his/her/its Claim?
RCW 11.40.070(4) provides that if a Creditor’s Claim is not lawfully presented (eg, it contains defects such as an omission of one of the statutory requirements, or it is not submitted in writing), then so long as:
You may pay it if:
Bottom-line: If you receive a modest bill, have no qualms about paying it, and believe that it would not be cost effective to return it and insist on the submission of a proper Creditor’s Claim, then you may waive the defects and pay it without subjecting yourself to personal liability.
Caution: You may not lawfully pay any Creditor’s Claim that was presented after the expiration of the applicable statute of limitations period. RCW 11.40.090(4); Bank of Montreal v. Buchanan, 32 Wash. 480 (1903). Furthermore, a Personal Representative may not waive the defect of a Creditor’s Claim being presented after the expiration of the applicable statute of limitations. Osborn v. Old Nat’l Bank, 10 Wn. App. 169 (1973); Ruth v. Dight, 75 Wn.2d 660 (1969) By paying a Creditor’s Claim unlawfully (eg, one that was presented after the expiration of the limitations period), you are subjecting yourself to personal liability to the estate for the amount of your payment.
Timing: Soon after 4 months after first publication of your Probate Notice to Creditors (ie, promptly after the expiration of the four-month statutory period).
Two issues (the latter of which is due to an estate being its own taxable entity):
- Determining and paying Descendant’s individual income tax due but unpaid as a result of death, and
- Determining and paying the estate’s fiduciary income tax during its administration.
As Descendant’s Personal Representative, you are responsible for filing Descendant’s final Income Tax Return (Form 1040) for the year of death, as well as any Returns not filed for prior years.
Example: Personal Returns are due on April 15 of the following year. If Descendant died on March 1, 2002, chances are that Descendant would not yet have filed his/her 2001 Income Tax Return (due 4/15/02) and surely would not have filed his/her 2002 Income Tax Return (due 4/15/03). The Personal Representative would be responsible for timely filing both the 2001 and the 2002 Returns.
If Descendant was married at death, the Personal Representative and the surviving spouse may file joint Returns for preceding and final years, except that the surviving spouse may not file a joint Return for the final year if he or she remarries before the end of the year of Descendant’s death.
A probate estate is its own taxable entity (like a traditional corporation), separate from the Descendant and his/her heirs or beneficiaries. It begins on the Descendant’s date of death and ends upon final distribution of its assets to the heirs or beneficiaries. As Descendant’s Personal Representative, you are responsible for annually filing the Estate’s income tax return (Form 1041, a Fiduciary Return) and paying its income tax, if:
You may report the estate’s income on either a calendar (ie, due April 15 of the following year) or a fiscal year basis. If you choose the latter, the estate’s tax year may end on the last day of the month of any of month following Descendant’s date of death so long as it does not exceed 12 months.
Schedule K-1 (of Form 1041) . As part of filing your annual Form 1041, you are also required to file with it a separate Schedule K-1 for each heir or beneficiary together with his or her Tax Identification Number (SSN for individuals; EIN for entities) and send a copy of each Schedule K-1 to its respective heir or beneficiary. The income tax liability of the estate attaches to its assets, so as estate income is either required to be distributed or is actually distributed to an heir or beneficiary, the burden for reporting and paying income tax on such income shifts from the estate to the recipient heir or beneficiary.
Example: Descendant’s Will provides that all estate income is to be distributed when received to Descendant’s surviving spouse. On the Schedule K-1 of your annual Form 1041 for the year of distribution, you would report the surviving spouse as the recipient of that income, and he/she would be required to report the income on his/her individual income tax return (his/her Form 1040) as income in the year in which he/she received it to the extent of the estate’s taxable income, what is known as the estate’s “Distributable Net Income” — for you, your receipt and concurrent distribution of such income would effectively amount to a wash transaction, for which you would pay no income tax.
While Washington has no personal income tax, there are several issues that are relevant if Descendant was engaged in business in Washington in his/her individual capacity:
For a Descendant dying between May 17 and December 31, 2005, if the sum of the value of Descendant’s estate plus his/her lifetime taxable gifts is less than $1,500,000, then no estate tax return nor estate tax should be required to be filed or paid, and you should be able to skip this section.
For a Descendant dying in 2006 or 2007, that amount increases to $2.000,000.
The estate tax is a tax levied on any property or interest in property held by a Descendant at death (plus the value of taxable gifts made by the Descendant during his/her lifetime). The estate tax is irrelevant to the great majority of estates, due to their having less than the minimum amount of property (including interests in property and lifetime taxable gifts) requiring the filing of an estate tax return, as stated above. For those few, larger estates requiring the filing of an estate tax return, the majority of them will likely avoid paying any estate tax, generally as a result of their qualifying for the estate tax marital or charitable deduction.
- Is the estate large enough so that an estate tax return must be filed?
- And if so, then:
- Do the estate’s assets pass such that no estate tax will be owed? And if not, then:
- How much estate tax will be owed?
Timing: By 9 months after date of death.
Caution: “Probate Estate” vs. “Taxable Estate” — a source of much confusion. A Washington Descendant’s probate estate:
A Washington Descendant’s gross or taxable estate:
Determine Descendant’s “Gross Estate” by calculating the value of all property “held” (ie, controlled, however directly or indirectly) by a Descendant at his/her death (whether in or out of the probate estate) increased by his/her adjusted taxable lifetime gifts. For example, the IRS Instructions for Form 706 (federal estate tax return), states, “The gross estate includes all property in which the Descendant had an interest (including real property outside the U.S.). It also includes:
Summary: “Gross Estate” = Value of all of Descendant’s property & property interests, including the above.
Determine Descendant’s “Taxable Estate” by reducing the Gross Estate by the “Allowable Deductions,” such as for:
Summary: “Taxable Estate” = Gross Estate – Allowable Deductions (eg, debts, funeral expenses paid by estate, administrative expenses, marital deduction, charitable deduction)
Obtain the “Applicable Exclusion Amount” from the following table, based upon Descendant’s year of death:
|Year of Death||Applicable Exclusion Amount||Highest Tax Rate|
|2010||Estate tax repealed||– 0 –|
Filing Requirement: If Descendant’s Gross Estate (plus lifetime taxable gifts) exceeds the pertinent Applicable Exclusion Amount, a federal estate tax return (Form 706) will almost certainly be required to be filed.
Paying Requirement: If Descendant’s Taxable Estate exceeds the pertinent Applicable Exclusion Amount, an estate tax will likely be required to be paid. Many estates are required to file a Form 706 although no actual estate tax is due, usually as a result of sufficient property passing to Descendant’s surviving spouse or qualified charities.
The federal estate tax sounds simple but is remarkably obtuse and arcane — and making sonorous music out of both of the income and the estate tax laws is just that more delicate. If you make a mistake regarding either tax, you may find yourself, knowingly or unknowingly, liable for substantially more tax, and possibly interest and penalties, than were necessary — or paying substantially more tax than was otherwise due.
If you, as Descendant’s Personal Representative, will likely be required to file a federal estate tax return (whether or not any estate tax is actually due), WASHINGTON PROBATE urges you to obtain legal assistance, preferably from someone having a specialty practice that includes estate tax planning and reporting. Substantial liability — or savings — may be involved.
Example: If Descendant died in 2002 or 2003 and “held” property worth $1 million or more at his/her date of death, you as his/her Personal Representative will almost certainly be required to file a federal estate tax return (Form 706) and may or may not be required to pay an estate tax, depending on the nature of Descendant’s beneficiaries.
For further information, see:
On February 3, 2005, the Washington Supreme Court abolished the Washington estate tax. See: The decision.
Thereafter, the Washington Legislature passed and the Governor signed legislation imposing a Washington estate tax for Descendants dying after May 16, 2005, having a taxable estate of more than $1.5 million in 2005 or $2 million in 2006 or later. The Washington estate tax rates begin at 10% and increase to 19% for taxable estates greater than $9 million.
Therefore, in deciding what property may appropriately be the subject of a Preliminary Distribution, all property subject to specific gifts (eg, I give all my shares of Microsoft stock to the United Way”) should be distributed first, followed by all property subject to general gifts (eg, I give 100 shares of Microsoft stock to the United Way”), and so forth.
Making one of more Preliminary Distributions promptly after publishing the Notice allows the Personal Representative and the heirs or beneficiaries to “have their cake and eat it, too”:
Wanting the probate process over and the assets transferred quickly after death may largely be had by making Preliminary Distributions, while also receiving the benefits of using the Washington Probate Creditor’s Claim Procedure.