As an estate executor, you are responsible for filing the accounting report to settle the estate. The process culminates in the “final accounting of the estate,” which is basically a business-type financial statement that itemizes the estate finances. Probate won’t close until every penny has been allocated correctly and properly documented.
If you don’t get it right the first time, probate court may reject your account filing. While state laws vary, here are the four key areas that the court—and beneficiaries—will be watching closely.
You already know that your first order of business is to take a complete inventory of all of the estate’s assets. You’ll also have to establish a fair market value of each of those assets at the time of the death. Through the course of probate, though, the value of those assets could fluctuate. Some of that can be fairly easy to track. For example, liquid assets, such as stocks or bonds, may have appreciated (or depreciated) over the course of probate. Financial statements will show those movements over time.
For fixed assets, such as real estate, jewelry, cars or antiques, you’ll need to establish their fair market value at both the beginning and the end of probate. If you’ve sold any of these assets, you’ll have to show the sales price and any difference between the original appraised value and sale price. Often, the largest single asset in an estate is a house. If the house is sold by the estate, it’s important to get certified appraisals of its value as soon as possible after the death and be able to account for any price difference after the sale, especially if the house was sold below its appraised value.
As the executor, it’s your job to collect any income due to either the decedent at the time of death or the estate during probate. For example, if part of the estate includes an ongoing business or rental properties, you’ll need to continue collecting the receipts from those entities until they are either sold or probate is settled. For the final report, all income will have to be listed separately according to the revenue source.
For example, any income that was owed to the decedent at the time of death, such as tax refunds, uncashed checks, or outstanding loans that were due, even if they were not yet collected, is usually recorded as an asset of the estate. Income received by the estate after the death will be recorded separately.
Every dime spent by the estate during probate will have to be itemized. You’ll need to record the date of each disbursement, who received it, what it was for (such as house insurance, property taxes, court fees, etc.) and the amount. Because you need a clear paper trail, we recommend that you avoid using cash. Write a check for everything, even the few dollars you spent to make copies of the Will.
As the executor, you’ll have broad discretion for most of the smaller disbursements, such as those required to manage the estate. Where we’ve seen people get into trouble is when they have paid creditors and/or beneficiaries too quickly and out of order, especially in insolvent estate situations. Over the course of probate, you’ll probably field dozens of demands for payment from potential creditors, and most of those may even be legitimate.
This is the culmination of your hard work—and your moment of reckoning. After all assets have been valued, bills paid, and specific bequests awarded, you’ll have to show how the residual will be distributed among the beneficiaries. If you’ve sold everything and all that’s left is cash, that will be easy. You’ll just follow the Will or the state inheritance laws and cut checks for everyone based on their allotted percentage.
Where this gets complicated is when other types of assets are involved, such as savings bonds that haven’t matured yet, or the Chippendale sideboard that appraised for $10,000 but nobody really wants. You’ll have to convince the court and the beneficiaries that you’ve devised an equitable distribution, because one unhappy recipient could protest how his or her share was calculated. That can send the entire process back to the drawing board.
While this may all sound like a lot of work, you don’t need to be a CPA to complete the required accounting for most estates. But you do need to be meticulous in your recordkeeping. In our experience about half of all final account statements get kicked back by the court for adjustments.