Mistake #1 – Failing to Identify All Estate Assets

An important early step in probating an estate is identification of assets and property of the deceased. Searching through the decedent’s home and papers can prove challenging, especially when you don’t know what you are looking for.

Often clues may lie in recent tax returns, incoming mail and online accounts.

Tax returns will generally indicate income sources, including those from financial institutions, as well as contributions to and/or required minimum distributions from retirement plans.

Mistake #2 – Failing to Identify Estate Assets vs. Non-Estate Assets

Generally, a financial asset that has a beneficiary designated is not an estate asset. Examples include life insurance policies and retirement assets. However, if a designated beneficiary died prior to the decedent, the benefit will become an estate asset.

Also, jointly owned real property and financial assets may, or may not be, an estate assets, depending upon how they are titled.

Accounts with POD and TOD designations are not estate assets.

Mistake #3 – Paying Creditors

Generally, it is best practice to pay only secured creditors at the outset of the probate process. Secured debts are debts secured by collateral such as mortgages and auto loans. Unsecured creditors must file a Claim Against the Estate with the Court, which then operates much like a lien. The unsecured debts will need to be paid, eventually.

There is a specific statute regarding the order of priority for paying creditors. If an estate is or becomes insolvent, creditors may not be paid or may be paid a reduced amount.

Mistake #4 – Failing to Cancel Memberships, Subscriptions and Auto-Debits

Many people have recurring payments made automatically. You must investigate and determine whether the decedent has automatic payments scheduled. These payments must be stopped. Payments made after the decedent’s death must be recaptured.

Most of these establishments receiving automatic payments will issue refunds to the estate for any period charged after date of death.

Also, all necessary payments, like secured debts, after death should be made by the estate out of a newly established estate bank account.

Mistake #5 – Mis-Handling Retirement Accounts

Retirement accounts present another pitfall for the unaware personal representative. Mis-handling these assets can have serious and irreversibly adverse tax consequences.

It is always advisable to seek the advice of a qualified tax professional and/or the attorney assisting you with probating the estate.

Mistake #6 – Failing to Request Refunds

Refunds may be due to the deceased, and thus the estate, for payments made after death.

These could include premiums for health insurance, auto insurance or homeowners insurance, phone and internet service, as well as subscriptions or memberships.

Mistake # 7 – Failing to Request Statements Before Closing an Account

When closing the deceased’s financial accounts, a personal representative should request statements from date of death up to the closure of the account. These will be required later to prepare the Administration Account for the Court.

Many financial institutions will gladly provide them at the time the account is being closed. On the other hand, many financial institutions will make it difficult, and costly, to request the same statements after an account is closed out.

Mistake #8 – Failing to Expediently Sell Real Property, Securities and Vehicles

As a fiduciary, a personal representative’s role is to protect, preserve and maximize the value of estate assets. Securities, such as stocks, bonds, mutual funds and ETFs, can fluctuate in value.

If there is an appreciable market slide that diminishes the value of the securities, heirs may have a right to sue the personal representative. Likewise, real estate market conditions can change rapidly. Thus, failure to sell real property as soon as possible can have a similar result.

Vehicles should not be driven. They should be sold or distributed to an heir as soon as possible to avoid diminishing value and/or unintended liability issues.

Mistake #9 – Failing to File Tax Returns

The personal representative is required to prepare and file the decedent’s final tax return; as well as filing tax returns for any prior year that the deceased failed to file.

This is a time-consuming task and can delay the closing and distribution of the estate. In some instances, a personal representative may be required to file a tax return for the estate itself.

It is always advisable to seek the advice of a qualified tax professional and/or the attorney assisting you with probating the estate.

Mistake #10 – Earning Income in the Estate Account

Under current tax law, an estate with more than $600 of income must file an IRS form 1041. Often a personal representative inadvertently triggers this necessity by earning interest in the estate bank account. Preparation of form 1041 can be expensive.

Often the cost of preparing the return is more than the amount of income reported. Thus, it is generally advisable to deposit the estate assets in a non-interest-bearing account.

Mistake #11 – Keeping Poor Records

Personal representative must submit periodic Administrative Accountings to the Court. These Accountings must be precise and include all transactions made within the estate. The accounting must balance precisely to the estate bank account.

Keeping poor records of income and expenses of the estate can result in a nightmare situation when rendering the Accounting.

Mistake #12 – Missing Court Deadlines

By statute, estates are required to submit numerous filings to the Court. Failing to file Inventories, Information Reports, Administrative Accounts and other required filings – or submitting incorrect and/or incomplete filings – can result in a personal representative being summoned to appear before a judge and often the end result is removal of the personal representative for cause.

In these cases, the Court may appoint either another individual or an attorney as personal representative.

Mistake #13 – Gifting Estate Assets

A personal representative may not gift estate assets. Estate assets belong ultimately to the heirs. So, for example, a personal representative cannot gift the decedent’s car to his niece even though she is not an heir of the estate.

A personal representative must also take great care when selling an estate asset as a sale for less than fair market value may be construed as a gift.

Following the same example, a personal representative should not sell the decedent’s car to a co-worker for $5000 if the inventoried fair market value is $9000.

Mistake #14 – Making Premature Distributions to Heirs

Courts have very specific procedures for final accounting and distribution of an estate. A personal representative may not distribute estate assets without first obtaining an Order of the Court.

This is a common mistake as family members may pressure a personal representative to distribute some or all of their inheritance due to the length of time necessary to complete the entire probate process and obtain Final Orders from the Court.

Mistake #15 – Not Hiring an Attorney

Probating an estate is complex at best. In fact, often attorneys who practice in other areas of law seek out experienced Estates & Trusts attorneys to refer their clients to when they need to probate an estate.

Neither the Court Judges, nor the staff of the Register of Wills can act as your legal advisor. In addition, the probate processes and procedures differ from county to county and especially from state to state.

Every estate is different, offering its own unique issues, complexities and challenges. Mistakes often cannot be undone. Thus, it is advisable to consult an experienced Estates & Trusts attorney of your choosing as soon as possible following the death of a loved one.

Probate Attorney in Silver Spring, Germantown, and throughout Maryland

For more than 30 years, the law firm of Paré & Associates, LLC has been helping clients in Montgomery County and the surrounding counties in MD with Probate matters.

Call us today for a free, no-obligation consultation at 301-961-2492 or email us at frontdesk@alicelaw.com