An estate is never really closed, but rather closing out an estate refers to the final distribution of the estate’s assets. At this point, the executor has no more duties to fulfill. However, if at some point in the future a previously unknown asset becomes known, the executor still has the responsibility to handle the asset. It does not matter how many months or years have passed since the estate was “closed.” Since the executor remains responsible, he or she should ensure they receive a release of liability prior to distributing the assets. Otherwise, a beneficiary may, at some point in the future, bring action against the executor and the executor no longer has any estate funds to hire a lawyer.
Steps for Closing an Estate with Beneficiaries
Step 1 – Pay the Estate’s Debts
All creditors and potential creditors must be notified of the deceased’s death. The regulations regarding how this must be carried out varies from state to state. In some states the creditors must be notified by mail, while in others posting a notice in the local newspaper is sufficient. All creditors must file any claims within the timeframe determined by the state.
The executor must determine if the claims are valid. If he or she feels the claim is not valid, the creditor must be notified. If any dispute cannot be resolved, the executor must ask the court for assistance in dealing with the issue.
All valid claims are then paid out using the estate’s assets.
Step 2 – File Tax Returns and Pay any Outstanding Taxes
The executor must file a federal estate tax return if the estate exceeds the amount specified by the Internal Revenue Service. This amount changes from time to time so check with the IRS or an accountant to determine if you must file a federal estate tax return.
The executor needs to file state estate tax returns. State law determines if any estate taxes are due. This varies from state to state. Some states require estate taxes from any estates larger than a set amount and others do not require any estate taxes.
Pay any estate taxes and get a release from the authorities to prove that all outstanding taxes have been paid. This document is required by the probate court before the estate can be closed.
Step 3 – Final Estate Accounting and Distribution of Assets
The estate final accounting is a legal document acquired from the probate court. The executor is responsible for filling out this document, listing all assets, expenses, and income from the estate. After completing the document, it must be filed with the probate court. The court can approve the final accounting without holding a hearing if all beneficiaries sign off. If it is not possible to get all beneficiaries to sign off on the document, the court will schedule a formal hearing during which beneficiaries can voice their objections.
Once the court has approved the estate final accounting, distributing the assets to the beneficiaries is now possible, following the terms dictated by the will.
After the assets have been distributed, the executor needs to file a closing statement or affidavit with the probate court. While the type of document varies from state to state, the purpose remains the same, primarily to let the court know that all assets have been distributed in accordance with the will.
The Estate Account
When an individual passes away, they may have money owed to them. The executor must open up a bank account in order to accept and hold that money. Typically, any other accounts held by the deceased are closed and the funds are transferred to the estate account. Any proceeds from the assets such as rent obtained from rental property and payment received for the sale of assets also are deposited into this account. The executor pays any expenses incurred by the estate from this account.
As the deceased’s Social Security number is no longer valid, the account cannot be in his or her name. The estate account needs to have its own tax identification number. Closing this account is typically the final step in the process of closing out an estate. It is closed after the court and beneficiaries have accepted the executor’s accounting and all assets have been distributed to the beneficiaries.