Settling Financial Affairs When A Loved One Dies—Part II

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By Steven J. Weil, Ph.D.

What Does the Probate and Inheritance Process Require?

After the funeral, financial and legal decisions are required to settle an estate.  Net assets must be transferred to legal heirs. This is called the probate process, which may include filing various federal and state tax returns on behalf of the deceased. 

A probate court must approve and validate the legality of a will and “grant probate to the executor as part of the inheritance process.  This necessitates the complicated job of recording all assets and debts of the deceased and all the pertinent financial records to comply with the will, the tax laws, and the courts. 

1.  Enlist the aid of a lawyer and/or tax accountant in organizing a preliminary inventory. State laws require that a reasonable effort be made to do this within specified time periods. The will may contain most of the information about assets and debts; but it may have been drawn up years ago, and the assets and debts may have changed. The information needed may come from many sources, e.g. life insurance policies, bank and brokerage accounts, safe deposit boxes, stock certificates, bonds, real estate contracts, vehicle registrations, and old tax returns, et al.  There may be ties to fraternal, military, or social organizations.

2.  Next, apply for payment of the benefits that are available upon death. They may include life insurance and Veteran’s benefits, Social Security, IRA’s, Keogh’s, SEP’s, and other employee-related benefits.  It’s important to get advice in advance and to be thorough because these benefits are not automatic. You must provide proof of death and of the beneficiaries.

  • Address life insurance first since the benefits usually can be distributed to heirs within 10 days of notification.  Proceeds do not have to go through probate, but they are subject to Estate taxes. More than half of all life insurance comes from employer group plans. Life insurance policies could be in a safe deposit box. Coverage may also come from associations, fraternal organizations, the Veterans Administration, credit card supplemental insurance (from death related to travel or accident), bank SBLI insurance, mortgage insurance, medical insurance policies, credit unions, et al. Review the deceased’s checkbook for payments to life insurance companies or groups. The American Council of Life Insurance in Washington D.C. may have a list of participating companies that includes those for the deceased.
  • Employee benefits are important.  Was the deceased entitled to a pension, profit sharing, stock options, or death benefit payouts? Worker’s compensation may apply if the death was from work-related injuries.  Call the employer for help with this next.
  • Military benefits also may be available for veterans in the form of life insurance, burial insurance, pension benefits to survivors, reimbursement for medical bills, or a lump sum death benefit. You’ll need to provide information about the service record that is normally found on discharge papers to the local VA office.
  • Social security benefits can be sizable if the deceased left a spouse with minor children. There is also a small death benefit for funeral expenses. Contact the local Social Security Administration office quickly to avoid delays in determining if benefits are due. If the deceased had been receiving social security or pension checks, any checks that continued after death may have to be returned.

3.  The death must be stated in an “open forum,” such as a newspaper listing, and, in some cases, sent to potential heirs and beneficiaries directly.

4.  All known debts are paid out of the estate, and various legal documents (including a final accounting) are recorded with the courts to allow the assets to pass on to the beneficiaries. This process can take years depending on the size of the estate, whether it is challenged, whether there was a will and the backlog in the Probate Court calendar.

5.  While most lawyers will handle filing the Succession (“Inheritance”)Tax Returns if owed to federal or state governments, a tax professional may be needed to handle the Income Tax Returns or the Fiduciary Tax Returns that may be required if the estate is yielding income during probate.  This is determined by the value of the deceased’s estate and factors such as whether the sole heir is a surviving spouse and U.S. citizen.

When the task is over, you may want to reevaluate your own situation to make it easier for your survivors.

Dr. Weil, an Enrolled Agent, operates several businesses, including RMS Accounting (1984) and its division, Bookkeepers Now (1986).  With his wife, Theresa, he oversees a staff of 16 full-time, year ‘round employees in their Fort Lauderdale offices.  They consult clients on all tax matters, including tax preparation and planning, bookkeeping, payroll, estate planning, audit representation, and other financial services.    

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