Cynthia Leach

Accountant & Estate Planner

To begin the probate process, one must file the original will with the probate court. The court will officially recognize the executor named in the will as the person with administrative responsibility to settle the estate's affairs. If no executor was named in the will or if the deceased died intestate, the court will appoint an administrator. Throughout the probate process, a number of legal documents must be filed regarding the nature of the estate. The court will make sure that the will is valid -- namely, that it is not forged and that its provisions are legal. Finally, the court will oversee the distribution of assets and final settlement of the estate. While there is no legal requirement to seek the assistance of an estate attorney, most people do, both to speed up the process and to ensure that they comply with all relevant state laws. Attorney fees are generally paid out of the estate and usually amount to 2% to 3% of total value of the estate.

Many books have been written with titles like How To Avoid Probate. The premise of these books is that probate can be a long, expensive, intrusive process and that one can avoid it by transferring assets before death. There are a variety of effective techniques, particularly those that involve trusts, that allow you to transfer property outside of the probate process. However, these strategies usually do not eliminate the need for probate; they merely minimize its importance.

When someone dies, the executor or administrator must file a final individual income tax return on his or her behalf, settling any taxes due on income earned by the decedent in his or her final year. Within nine months after the death, the executor or the administrator may also be required to file a different kind of tax return for a new entity: the estate. This estate tax return is necessary because the government taxes our right to transfer property to others when we die. The government also taxes certain gifts made before we die, at the same rate. Current gift and estate tax rates range from 18% to 55%, although a variety of credits can be applied against these taxes. The estate tax filing requirement applies to estates with assets having a value equal to or greater than the $1 million exemption amount.

In preparing the estate tax return, the estate's tax adviser will identify all of the assets that compose the gross estate. He or she will then subtract the various credits and compute the tax due. These calculations are computed on IRS Form 706, the estate tax return form. Much of this form requires the tax preparer to identify the value of estate assets. Our Recordkeeper can be particularly helpful in this regard. Once the estate taxes have been calculated, they must be paid before any property can be distributed.

The executor or administrator must be prepared to file one last type of tax return on behalf of the estate: estate income tax returns. During the months and perhaps years after the death, the estate will pass through the probate process. When the court overseeing the estate is satisfied that there are no challenges to the will -- or that no will exists -- the estate's property can be transferred to its new owners. In the meantime, however, the estate will usually generate income, such as from dividends or interest or from the sale of assets. This income is taxable to the estate, and the executor or administrator must file a fiduciary income tax return on behalf of the estate. When all of the estate's assets have been disbursed, the court can consider the estate settled, and no more returns need to be filed.