If you are appointed as a personal representative of an estate, more specifically, if you are appointed as an Executor or an Administrator, your number one goal is to protect the assets of the estate and the inheritance of its beneficiaries. It is your duty to collect and take control of all the decedent’s assets, to notify the decedent’s creditors, to pay insure the property and to pay taxes and the proved and just debts of the decedent’s properly payable debts, to pursue claims and, after the administration is completed, to distribute the remaining assets to the decedent’s beneficiaries or heirs.
In Texas, there are two (2) types of estate administration: (1) independent and (2) dependent. An “independent administration” is independent of court supervision – meaning, the personal representative administers the Estate outside the court system; that is, without court supervision. In contrast, a “dependent administration” requires the personal representative to post a bond sufficient to protect the liquid assets in the estate and to seek court approval and authority (permission) to take almost all action on behalf of the estate. Dependent administrations are usually more burdensome and expensive, but, because of the stricter rules and court oversight, provide greater protection of the estate for the benefit of its beneficiaries; it also offers protection to the personal representative since his or her acts are approved by the Court and guided by their estate lawyer. However, Independent administrations are preferred because they are far more efficient and usually less expensive. Independent administrations are only created two ways: (1) in a decedent’s will and (2) by court order after all interested persons agree to the administration being independent and without bond; absent either of the latter, the administration must be dependent.
Control and Protect the Estate
Once you have been appointed, qualified, and received your letters testamentary or of administration, you then must immediately take control of all personal and real property of the estate. As the executor or administrator, you have many fiduciary duties, including ensuring that all estate property is protected and secure. This includes transferring liquid assets into estate accounts, collecting and safeguarding personal property, and purchasing insurance on real property and other insurable assets and pursuing claims of the estate against people or entities that owe the estate money. Serving as a personal representative of an estate can be a thankless job and sometimes can become a hornets’ nest. You must play the “cards you are dealt”, that is to say, you must take the estate as the decedent left it, with all of its assets and burdens. If you fail to do your due diligence in taking control and protecting estate property, then you are liable for all lost occasioned by your lack of diligence – meaning, if estate property is lost or stolen because you failed to secure it, you, or your bond if you have one, will have to return the value of the property to the estate.
Notice to Beneficiaries, if Will Probated
Within sixty (60) days of the date that the Decedent’s Will is admitted to probate, you must give notice to all beneficiaries of the Will, no matter how large or small their interest is in the estate. The specific requirements must be strictly followed and a beneficiary is entitled to know (a) the Decedent’s name, (b) that the Decedent’s Will has been probated, (c) that he or she is a beneficiary of the Will, (d) who the executor is and his or her contact information, i.e., your contact information, and (e) what the beneficiary is to receive under the Will. You are also required to provide a copy of the Will to the beneficiary or to provide them with a summary of the gifts and information related to the probate of the Will.
Inventory, Appraisement and List of Claims
Within ninety (90) days of the date you qualify as executor or administrator, you must prepare and file a full and detailed Inventory, Appraisement, and List of Claims (the “Inventory”). The Inventory must be verified (sworn to under the penalties of perjury) and include all probate assets in and claims belonging to the estate as of the date of the Decedent’s death. In other words, the Inventory is a “snapshot” of the Decedent’s estate on the date of their passing.
The Inventory must include all probate (as opposed to non-probate) assets, both personal and real property, owned by the Decedent and, if the Decedent was married at the time of his death, must state whether that property is separate property or community property. All property listed in the Inventory should have a general valuation or appraisal and must be a reasonably accurate representation of the probate assets of the estate. The list of property should be as exact as possible, but the values assigned are not determinative, so, as long as they are close, the Inventory should be approved as a perfunctory matter. Parties may object if property that should have been included is omitted or if values are grossly inaccurate; but such “errors” can be easily cured.
If additional probate assets come to your knowledge after you have filed your initial Inventory, you must amend the Inventory as necessary to ensure it is correct. The Inventory includes only probate assets. Assets that pass outside the probate estate in accordance with a beneficiary designation or contract, such as life insurance, retirement accounts and other pay-on-death accounts are non-probate assets and are not included in the Inventory.
A copy of the Inventory is required to be provided to each beneficiary. The Inventory is also required to be filed with the Court. However, in order to protect the privacy of the estate, a surviving spouse or other beneficiary, you can file an Affidavit in Lieu of Inventory (the “Affidavit in Lieu”), if there are no unpaid debts and the Decedent’s Will does not prevent you from doing so. The executor or administrator must still prepare and deliver a copy of the Inventory to the beneficiaries, even though it is not filed because the Affidavit in Lieu of Inventory, filed with the Court, requires sworn testimony that you have done so.
In an independent administration, once the executor or administrator has filed the Inventory or Affidavit in Lieu of Inventor, the Court loses jurisdiction over the administration and the executor and administrator must administer the estate, according to the terms of the Will and within their fiduciary duties. This is why it is so important to have good legal representation to guide you through the process and to avoid unnecessary exposure to liability.
Debts and Creditors
When a person dies, often times there have unpaid debts or debts that are claimed to be owed to someone else by the estate. These debts include, but are not limited to mortgages, credit cards, medical expenses, funeral costs, etc. When an estate has creditors, those creditors do not get to go “grab” any property of the estate it wants to satisfy the claim. In all estate administrations, there is a formal process for creditors to present claims for payment that must be followed to provide orderly administration of estates. Creditors are required to present their claim, along with supporting documentation, and to prove their claims before an estate is obligated to pay. If the claim is properly presented, then it can be approved by the personal representative in the due course of administration. If approved, the claim must also be classified to set the creditor’s place in line for payment.
Often, creditors of a decedent do not even know a debtor has died. As a result, the personal representative is required to publish, within thirty (30) days of qualification, a general notice (in a newspaper of general publication printed in the county) to all creditors of the decedent’s estate. Secured creditors must also be notified within thirty (30) days. The personal representative may also, permissively, send notice, via certified mail, return receipt requested, to known unsecured creditors. The notices to known and unknown creditors serve two (2) important purposes: (1) you put the creditor on notice of the decedent’s death and (2) the notice starts the running of the shortest statute of limitations under Texas law – four (4) months – for a creditor to file his, her or its claim or claims. Because all beneficiaries or heirs of an estate take their inheritance subject to the debts of an estate, creditors must submit or file their claims in a timely fashion, so the estate can be administered efficiently and economically. No inheritance distribution can be made until this process is completed.
Once a claim has been made and presented to you as the executor or administrator, you are charged with the duty to either (a) accept the claim and classifying it for payment, or (b) reject it as invalid. The Texas Estates Code sets out the requirements for a creditor to present a valid claim and those requirements must be strictly followed. The claims process can be tricky and hiring an experienced probate attorney is a must. If rejected, the creditor has the right to file suit to prove the claim and the right to be paid; the executor or administrator must make the proper decision about whether to approve the claim because, if successfully proven, the creditor can require the estate to pay the creditor’s attorney’s fees and expenses, which will not make the beneficiaries happy. In addition, if the executor or administrator approves a bogus or unprovable claim, then he, she or it may be liable to the beneficiaries for improperly paying creditors. It is also important to remember that beneficiaries or heirs take their inheritance subject to the debts and expenses of the estate. The amount owed to creditors dictates how much inheritance is available, if any.
Other Actions and Final Distribution
Depending on the value of the estate and the amount of liabilities, you may be required to take other actions. For example, assets and property may need to be sold in order to pay debts, income taxes may need to be paid in relation to the tax year preceding the Decedent’s death and, if applicable, an estate tax return may need to be filed, which is the duty of the executor or administrator. You also have to be aware of what happens when property left in a Will no longer exists and the order in which bequests abate, based upon payment of creditors. The process can get very complicated. Once all of the debts have been paid, all lawsuits have been completed, and all of the business of the estate is completed, you will then be able distribute the remaining assets to the beneficiaries or heirs according to the terms of the Will.
Prepared in collaboration by: Brendan P. Harvell and Timothy J. Miller
There is a lot more involved with administering an estate, which will be addressed in other blogs, but being a fiduciary, i.e., a personal representative (executor or administrator) inherently brings with it exposure to liability because you are holding and protecting another’s inheritance and because of the duties that accompany the appointment, which must be strictly followed. You should seek advice about such liability before you agree to serve as a fiduciary. If you decide to serve, it is essential for a personal representative to hire an experienced estate attorney to ensure receipt of proper advice necessary to navigate through the estate administration process without exposure to unnecessary liability. Failure to seek such advise will inevitably put you on the wrong-side of a lawsuit. The attorneys at Spencer Law, P.C. can assist and advise you in properly performing and completing the administration of an estate. Contact us at (214) 965-9999 to get the guidance you need!