Estates are settled through probate, which is a process overseen by a local court to ensure that the decedent’s debts are paid and that the remainder of the estate is distributed to the correct beneficiaries. A will may also stipulate that the property should be divided amongst the beneficiaries subject to certain conditions. It is important to note that the probate laws vary by state. If you are an executor of a will, review the laws of the state where probate is taking place.
Once an estate files for probate, the first thing the court will do is check to see if there is a valid will. If there is a will, that document will generally be used to identify who will manage the day-to-day tasks of settling the estate as well as who the estate’s beneficiaries are. Although the standards of what makes a will valid may vary, generally a will must be drafted by a person of sound mind who signs the document in the presence of two witnesses. The witnesses must also sign the document.
Settling Decedent's Debts
Before the property is distributed, the executor must settle the estate's outstanding debts. These include all of the decedent’s debt, plus the funeral expenses, the estate’s administrative costs and any estate taxes. If the estate does not have enough cash to pay off his debts, then the executor must sell the estate’s assets to make up the difference. Generally, the executor does not decide which assets are sold. Either the will itself or state law determines which assets must be sold to satisfy the estate’s debts.
Read More: Why Does a Probate Require an Appraisal on the Decedent's Property Upon Death?
Distribution of Property.
Once the estate’s debts have been settled, what property remains is distributed amongst the decedent’s beneficiaries. The executor distributes the property according to the terms of the will, which should define which property goes to which person. If some of the estate’s property was sold to settle the estate’s debts, the beneficiary’s gift is abated. This means that the beneficiary will receive what the proceeds from the sale of the property she was supposed to get minus the amount used to settle the estate’s debt. So if John’s uncle left him a car in his will that sold for $25,000 to settle $5000 worth of debt, John will get $20,000 in cash from the estate.
Sometimes a single piece of property, such as real estate, is left to multiple owners in a will. The estate will either leave the property to the co-owners as tenants in common or as joint tenants. Both tenants in common and joint tenants each own a percentage of the asset but are allowed to use the whole property. The difference between the two is that when a joint tenant dies, his property rights are not included in his estate but go to the other joint tenants automatically; the last surviving joint tenant owes the entire property outright. With tenancy in common and joint tenancy, the property can be divided amongst the beneficiaries by the owners petitioning a court to partition the property. The court will either physically divide up the property based on each owner’s state in the asset or will order the sale of the property and divide the proceeds amongst the owners.
John Cromwell specializes in financial, legal and small business issues. Cromwell holds a bachelor's and master's degree in accounting, as well as a Juris Doctor. He is currently a co-founder of two businesses.