The Role of The Estate Administrator When There is No Will (Intestate)
At first glance, the role of an estate administrator may appear to be simple. But complications vary from estate to estate. It depends, among other factors, on the size of the estate, type of assets, the beneficiaries involved, and mainly the appointed administrator. The administrator (also known as the fiduciary) is a key player in the estate’s ability to cross the finish line ie settle the estate. The fiduciary must have the ability to understand the process, or at the least, follow the instructions and guidance of her estate lawyer. Ignorance of the law or reliance on bad legal advice is not an excusable defense in New York Surrogate’s Court. Lack of understanding and lack of communication from a fiduciary is the most frequent complaint from heirs. But without past experience or a guiding legal hand, how do you effectively administer an estate? One easy way to alleviate conflict and disputes is by reading the following tips below.
The role of an estate administrator starts with the proper submission of the petition for letters of administration to the Surrogate’s Court. Your petition is foundational to establishing your eligibility to serve as fiduciary and building trust with the parties and the court. In short, the petition for letters of administration must be truthful, in that the true size of the estate is disclosed (approximate value is ok), and the names and addresses of all persons with an interest in the estate are listed. The administrator must disclose each heir’s present address, relationship to the deceased, and citizenship status.
Despite relationship status to the decedent, not everyone is eligible to serve as a fiduciary. A person convicted of a felony, for example, cannot serve as fiduciary absent submission of a Certificate of Relief from Civil Disabilities. The administrator must also be a United States citizen or a permanent resident (ie green card holder). Citizenship and felony status must be truthfully disclosed in the petition. The petition and all documents (with the exception of the death certificate) filed with the Surrogate’s Court are a public record, easily accessible in the Records Room of that courthouse. An heir can review the record free of charge to determine its accuracy.
Knowing who to list as an heir can be tricky business. For example, a child of a predeceased heir commonly inherits under the estate. If decedent had three daughters in total, in which one died before him leaving children of her own, the decedent’s two living children and the children of the deceased daughter (his grandchildren) are his heirs-at-law and inherit from his estate. Sounds simple, but for most people and sometimes lawyers, it isn’t. Sometimes a petitioner will leave out an heir intentionally in order to inherit a bigger share. This often leads to their removal by the court and thousands of dollars spent on legal fees and penalties. Keep it truthful. Administering an estate is hard enough. Don’t complicate it by trying to beat the system.
Once you are granted letters of administration, the process of collecting assets begins. For assets consisting of stocks, bonds, annuities, life insurance policies and bank accounts, the process is straightforward. We instruct the fiduciary to make contact by phone with the institutions to request the transfer application and the checklist of required documents. For bank accounts held in major institutions such as Chase, Bank of America, Citibank, etc., liquidating a decedent’s account very often simply requires a visit to the local branch with the following documents: certified letters of administration (dated within six months); decedent’s death certificate; and the estate’s Employer Identification Number (EIN). Liquidation of estate assets involves closing out accounts and transferring the balances to an estate bank account set up by the fiduciary.
It’s good practice to check Unclaimed Funds regularly ( https://www.osc.state.ny.us/ouf/ ) for any forgotten accounts that may have been transferred to the New York Comptroller Office. When a financial account has no activity for a period of one year (or less), the institution transfers the balance to New York State Unclaimed Funds for safekeeping. The fiduciary can then claim the funds by mailing in a form with the required paperwork. If a quick name search on the Unclaimed Funds website yields a match, the fiduciary will have to mail in the necessary documents and wait at least 90 days for a response. The Office of Unclaimed Funds inputs the decedent’s social security number on their database and produces a list of accounts held in the decedent’s name. Make sure to check their site periodically as assets may not show one year and appear the next.
Selling Real Estate
The basic objective for a fiduciary when selling real estate is to sell high. Real estate should be sold at fair market value (FMV), or higher. Of course, there may be circumstances that warrant a discounted sale, such as an impending foreclosure sale, or the interested parties all agree to sell for less. After letters of administration issue, assuming the property is vacant, the next step is to retain a reliable real estate broker to list the home on the market. Before listing and entering into contract, a broker will provide the fiduciary with recent sales comparisons in the home’s vicinity which should serve as a guideline for the initial asking price. Listing the property way above FMV may be an indication of the fiduciary’s bad faith or inability to understand the process. Why bad faith? The fiduciary may be trying to delay the sale because she or a family member lives in the home, wants to be spiteful to the other heirs, or is just plain greedy.
Lifting Restrictions on Letters of Administration
Depending on the county and the judge assigned to the estate, a fiduciary’s letters of administration may contain language such as: ADMINISTRATOR IS HEREBY RESTAINED FROM SELLING, TRANSFERRING, MORTGAGING OR IN ANY MANNER ENCUMBERING THE REAL PROPERTY OF THE DECEASED EXCEPT FURTHER ORDER FROM THIS COURT.
This is common. Lifting these restrictions from the letters of administration to allow a sale entails filing a petition with the Surrogate’s Court with the fully executed contract attached as an exhibit. A petition cannot be filed until the fiduciary has accepted an offer on the real property and both the seller (fiduciary of the estate) and the buyer, have signed the contract forming a fully executed binding agreement. The petition filed with the court should state the fair market value of the subject property, the sale price, name of the buyer, contract terms, and list all parties of interest to the estate.
The purpose of the petition to lift restrictions is to ensure that all interested parties are aware of the sale price and the terms of the contract, and have the opportunity to voice their objections before the property is sold. Each heir must either sign a waiver and consent form agreeing to the sale or be served with a citation to appear in court with their grievances. Some of the grounds to object to a sale may be conflict of interest (ie fiduciary selling to a family member), self-dealing, fraud, and selling below fair market value.
It is important to have a clear picture of the goal of estate administration: liquidate assets, deposit into estate bank account, pay bills and distribute to the heirs. At the closing table for the sale of the real property, the buyer typically issues a check made payable to the Estate (ie To: The Estate of Alex Smith). The sale proceeds are then deposited into an estate bank account. Depending on the circumstances, a check may be issued to an attorney escrow account instead. Its not a common occurrence for the sale proceeds to be distributed directly to the heirs at closing, but it can happen given an appropriate situation.
The fiduciary manages the estate bank account until the funds are fully distributed and the estate is settled. When all affairs are finalized, the account is closed to avoid monthly banking fees.
Preparing an Accounting
On top of everything, the heirs will expect a fiduciary accounting as the estate gets near to a close. The administrator will have to keep receipts and use sound judgment when paying expenditures. For example, hiring a junk removal company to clear out the estate home before its sale is an ordinary and necessary expense, however, paying for the fiduciary’s extravagant meals and travel expenses may be deemed abuse.
Many times an administrator can prevent a Formal Accounting with the Surrogate’s Court by having the parties accept an Informal Accounting instead. The parties are free to agree to an accounting without court intervention. Have a talk with the heirs about the delay and expense of bringing a formal accounting proceeding in court. Complying with the many requirements of bringing an account in New York Surrogate’s Court is difficult and expensive. A properly prepared informal accounting will contain an itemized list of all assets collected, expenses paid out, legal fees to date, calculation of fiduciary commissions, a hold for contingent claims, funeral expenses, and anticipated final distributions to be made to the heirs.
Paying Inheritance Tax, Estate Tax and Income Tax
The good news is that there is no inheritance tax in New York State. For illustration, Jack’s last will and testament leaves his nephew Jason one million dollars. Jason does not pay any inheritance tax, he takes this gift free and clear. Jason does not need to report his inheritance to the IRS or NYS.
With respect to estate tax, most estates never exceed the exemption threshold for a given year. For example, for a decedent who died in 2019 with an estate valued at less than $11.4 million, no federal estate tax is due. The following is a five-year chart of exemption amounts. If the gross value of an estate exceeds the exemption amount for that year, an estate tax return is required to be filed. Using this chart, if decedent died in 2014, and his estate is valued at six million, the fiduciary will have to retain an experienced tax professional for file an estate tax return.
In addition to federal estate tax, a New York State estate tax may be due. As with federal estate tax, NYS provides exclusion amounts according to the date of death. If the decedent’s estate is equal to or less than the threshold amount at the time of death, no tax is due to the State.
|For dates of death||Threshold is|
|on or after April 1, 2014, and before April 1, 2015||$2,062,500.|
|on or after April 1, 2015, and before April 1, 2016||$3,125,000.|
|on or after April 1, 2016, and before April 1, 2017||$4,187,500.|
|on or after April 1, 2017, and before January 1, 2019||$5,250,000.|
|on or after January 1, 2019 and before January 1, 2020||$5,740,000.|
Another question to consider is whether an income tax return is necessary. Was the decedent employed or receiving income from any source the year of his death? If yes, an income tax return must be filed for all income received the year of death and for the prior year, if no return was filed.
Inventory of Assets
Within nine (9) months of letters of administration issuing, the fiduciary or the attorney of record is required to file an Inventory of Assets with the Surrogate’s Court. The form, provided by the court, will ask the fiduciary or her lawyer to identify by letter the value of the assets owned by the decedent at time of death, assets held in trust, those assets over which decedent designated a beneficiary, and jointly held property, as follows:
B-$10,000 to under $20,000;
C-$20,000 to under $50,000;
D-$50,000 to under $100,000;
E-$100,000 to under $250,000;
F-$250,000 to under $500,000;
G-$500,000 or over
If the Inventory of Assets is not filed, the court may revoke letters of administration or refuse to issue updated letters until the form is submitted. If the estate was undervalued in the petition and now its reported as more, an additional filing fee may be due. For example, Ana’s petition for letters of administration lists the decedents assets as $400,000. Ana initially pays a court filing fee of $625.00 based on the fee schedule (over $250,000 but less than $500,000). If at filing of the Inventory of Assets, the estate is valued at more than $500,000, an additional filing fee of $625.00 must be paid. If you overpaid on the filing fee, you can apply for a refund of the balance.
The following is a Surrogate’s Court Fee Schedule for filing a petition for Probate,
Administration, or Accounting in Kings, Queens, Bronx, Richmond, Nassau, Suffolk, and New York County:
|Value of Estate or Subject Matter||Fee Rate|
|Less than $10,000||$45.00|
|$10,000 but under $20,000||$75.00|
|$20,000 but under $50,000||$215.00|
|$50,000 but under $100,000||$280.00|
|$100,000 but under $250,000||$420.00|
|$250,000 but under $500,000||$625.00|
|$500,000 and over $1,250.00||$1,250.00|
Just like a person, an estate entity may need to pay debts. These debts can take the form of a student loan, credit card bills, utilities, mortgage balances and personal loans. Paying creditors should not be a given, but should instead be consulted with an estate attorney. Not every debt is legitimate. Depending on the circumstances and the amount of the alleged debt, a lawyer may advise to hold off on payment until (and if) a verified claim is filed. Defending a claim or negotiating a balance can be tough business and should be left to a legal professional. In sum, don’t pay debts just because you got a notice in the mail; investigate and consult with an attorney first.
Understanding the Role of an Estate Administrator
The fundamental responsibility of a fiduciary is to act in the best interest of estate. This means to not engage in self dealing, not sell assets at a fire sale, pay only necessary and ordinary expenses, timely file taxes to not incur penalties and late fees, and not favor one heir over another. Becoming the administrator does not give someone the right to decide whether someone receives their inheritance. Oftentimes, our office receives troubling calls from potential clients who think that this position enables them to call all the shots on who gets their inheritance. If they have an estranged relationship with an heir or think they’re not deserving, they get no distribution. This is very concerning and further proves the need of experienced legal counsel. Be clear that the becoming estate administrator does not give you the sole discretion to decide who gets a bite of the estate. The distribution framework is statutory in that the decedent’s heirs-at-law and their share is determined by law. A fiduciary cannot disinherit an heir.
If you cannot afford legal counsel, please visit Surrogate’s Court to determine the decedent’s heirs-at-law. This is not always clear when there are predeceased family members, adopted persons, non marital children, and distant relatives.
It’s often advantageous to consult with an estate lawyer to minimize liability exposure and ensure smooth and proper administration. Contact us if you require a consultation or need legal representation. We help estate administrators and executors stay ahead of the curve. Call us at 646-233-0826.
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