The death of a loved one is a difficult time, and handling the legal and financial responsibilities of closing their estate can feel overwhelming. Estate closure ensures the proper transfer of assets, settlement of debts, and resolution of financial matters. While this process can involve probate, having proactively used tools like trusts and beneficiary designations help streamline and simplify eventual estate administration. In this blog, we’ll explore the steps for closing an estate, who needs to be involved, how to reduce stress and expedite the process.
What Needs to Be Considered when Closing an Estate?
Closing an estate involves managing financial assets, legal documents, and state probate laws. Key factors to consider include:
Locating the Will and Trust Documents: If your loved one created a will, it dictates how assets should be distributed. However, if they had a revocable trust, assets in trust bypass probate entirely, allowing for a faster and more private distribution of assets. Trust assets are typically transferred to beneficiaries without court involvement, and trusts are not listed on public records as happens with will when going through probate.
Identifying the Executor or Trustee: If there’s a will, an executor or agent (named in the document) manages the estate closure. If a trust exists, a trustee takes on this role. The trustee may have already been involved with trust management while their loved one was living, but it may also be a new role if they were named as contingent trustee. These roles can also be shared. It’s important to understand if multiple agents or trustees must act together or can act independently.
Taking Inventory of Assets: You must identify and value all assets, including real estate, investments, bank accounts, and personal items. Some of these assets may have beneficiary designations, which is often the case for insurance and retirement accounts. If the asset has a beneficiary designation, paperwork is filed by the beneficiary with the custodian to distribute the assets to the named beneficiary. This process avoids both trust and probate. For assets placed in trust, the trustee will have direct access and can manage them without probate court approval. This can be useful if bills related to the estate have to be paid, giving the trustee time to get sorted before distributing any remaining balance.
Settling Debts and Liabilities: The estate must settle any outstanding debts, such as mortgages or medical bills. In most cases, creditors must be notified, and debts paid before assets are distributed. A revocable trust may allow quicker settlement since assets in the trust are already designated for specific uses.
Settling taxes and estate form filings: As they say, there are only 2 things guaranteed and it’s death and taxes. Being in charge means holding enough funds back to settle any final income taxes due. It also means navigating any estate taxes that may be due at the federal or state level.
Selling off assets, such as home, land or business: You’ll need to figure out the concensus on what should be kept, retitled, or sold. Potentially you need to sell off property in order to create liquidity to settle the estate (you can’t pay the tax man with a brick from the front steps). Or maybe the beneficiaries aren’t interested in inheriting or co-owning the family business, so it needs to be sold with the proceeds divided.
Who Needs to Get Involved?
When closing an estate, certain individuals and professionals play key roles:
Executor or Trustee: The executor handles the estate if there’s a will, while the trustee manages assets in a revocable trust. Trustees generally have less oversight from the courts, leading to a more efficient process.
Probate Attorney: An attorney is often necessary to guide executors through the probate process. However, legal involvement may be reduced when using trusts and designations since the estate can be settled without probate court, saving on legal fees and time.
Accountant: Whether assets are in a trust or probate, a tax professional is often needed to file the deceased’s final tax returns and address any estate tax obligations.
Realtor or Business Brokers: As mentioned, if the estate includes real estate, land or a business, and there is more than one beneficiary involved, it may make sense to sell these assets and distribute the cash proceeds. Hiring a professional to help list and show these assets in their best light can alleviate some of the work of a trustee/executor. It also brings in a third-party opinion on market value and how to get top dollar without belaboring the process.
Financial Institutions: Banks, investment firms, and insurance companies must be notified of the death to release funds or transfer ownership of accounts. If a revocable trust holds these assets, the trustee can handle this directly without probate court approval.
Court System: Probate courts oversee the estate closure for any assets left to the estate vs a person or trust.
Beneficiaries: These are the individuals or entities receiving the estate’s assets. The trustee communicates with beneficiaries and distributes trust assets according to the trust’s instructions, which often allows them to receive their inheritance sooner than through probate. Beneficiaries also need to file their own paperwork with the financial institutions to prove their claim on any designated accounts. Often times financial professionals will alert beneficiaries to these accounts to help streamline the process and direct them to the custodian’s estate department.
- Social Security: Sometimes Social Security is notified of a passing via a funeral director or custodian. But I’ve seen this get missed, leaving it up to the executor to contact them to discontinue benefits. The executor will be responsible to repay any overpaid benefits during the time Social Security was unaware of the death. Similarly, any pension or retirement benefit provider will also need to be notified.
Typical Timeline for Closing an Estate
Closing an estate can vary in length depending on its complexity, whether probate is necessary, and how well-organized the estate plan is. Here’s a general timeline:
First Few Weeks: Obtain the death certificate, locate the will and trust documents, notify beneficiaries, and file for probate (if applicable). If a trust is used, the trustee can begin distributing assets immediately.
3–6 Months: Inventory assets, settle debts, and manage property transfers. For assets in a trust, this process is faster since the trustee does not need court approval.
6–12 Months: Finalize tax filings, including income and estate taxes. Trust-held assets can often be distributed at this stage, while probate may still be ongoing for other assets.
12–18 Months: Once all debts and taxes are settled, probate (if required) concludes, and the executor distributes the remaining assets. A trust may be lingering at this time in the event there is an illiquid or slow-selling asset, such as a home or business.
For more information on this topic, download my guide What Issues Should I Consider Before Closing The Estate.
