When the administration of a decedent's estate begins, those who are most directly concerned are often uncertain about what to expect and how to proceed. Most people are not familiar with the administration of decedent's estates and with the many steps to be taken before the estate may be distributed.
This memorandum outlines the matters to be considered in the administration of a decedent's estate and the obligations one assumes as a personal representative of the estate. A memorandum such as this must be general in nature. Most of what is contained in this memorandum applies to all estates regardless of whether the personal representative is an individual or a bank. However, our primary purpose is to introduce individuals to the process of administering a decedent's estate and to anticipate some of your questions. The following paragraphs might raise further questions. We are available to answer those questions and to provide more detailed advice and any information you may require.
An "executor" is the person designated in a will to administer a decedent's estate. An "administrator" is appointed to administer an estate either when there is no will, when an executor has not been named in a will, or when the person named in the will as executor is unable to act. We refer to "personal representatives" in this memorandum, a term which includes both executors and administrators.
The paragraphs below are numbered consecutively, but are not written in order of importance or chronological sequence. Some of them may not be applicable to your decedent's estate. If you are uncertain as to the applicability of a particular paragraph, please ask us.
1. Duties of Personal Representatives
In general, your duties are to collect and conserve, and manage and control the assets of the estate, pay the debts of the decedent, pay all taxes due from the decedent and the estate, and distribute the balance of the estate according to the will or, if there is no will, in accordance with the laws of intestate succession. The law expects you to use care and diligence in carrying out these duties. California law also provides an orderly procedure to accomplish all these steps.
As a personal representative you should do the following:
a. Take possession of all the estate's property insofar as practicable. Joint tenancy property, life insurance proceeds, and retirement plan benefits (unless payable to the estate) are not included in the property under the jurisdiction of the probate court;
b. Collect all dividends, interest and other income, and deposit all such items in an interest-earning estate bank account (or accounts) until the estate is closed;
c. Keep a detailed account of all your receipts and disbursements for the estate: List the date, source, and amount of each receipt and date, nature of payment, and amount of each disbursement;
d. File all tax returns and pay all taxes - your accountant will advise you of the tax returns that will be required and when they should be filed; and
e. Keep estate property adequately insured (we recommend early review of all casualty. property and liability insurance policies and of the general need for insurance).
Without consulting us in advance, YOU SHOULD NOT DO ANY OF THE FOLLOWING:

a.              Sell any property of the estate;
b.              Give away any estate property;
c.              Lease estate property;
d.              Pay or compromise any debts or claims against the estate (including bills and/or
         expenses or the decedent's last illness);
e.              Sell stock. exercise subscription rights, or buy stocks or bonds for the estate:
f.              Distribute estate property to any devisee or heir;
g.              Deposit estate funds in your personal account or otherwise estate property with
         your own;
h.              Act without the concurrence of the other personal representative(s) if two or more
                have been appointed by the probate court.
2. Before Formal Administration Begins
Technically, the administration of a decedent's estate does not begin until the will, if any, has been admitted to probate by the Superior Court and Letters Testamentary or Letters of Administration have been issued. However, prior to the appointment of a personal representative, the decedent's family, the nominated executor, and/or other concerned persons should take the necessary steps to:
a.       Determine and carry out the decedent's wishes with respect to, burial, cremation, etc.;
b.       Locate the original will;
c.        Maintain the decedent's home;
d.       Protect the decedent's property;
e.        Provide for support of the decedent's dependents; and
f.        Notify the State Director of Health Services (if the decedent received MediCal benefits).
The circumstances of each decedent vary widely, and temporary needs will be met differently in each case. There are usually alternative solutions for special problems and temporary difficulties that may exist during the period between death and the court's appointment of a personal representative. We are available to discuss any such problems or difficulties that may arise and will be happy to provide assistance and guidance.
3. Issuance of Letters Testamentary or Letters of Administration
Within 30 days after a decedent's death, the person who has custody of his or her will must file it with the County Clerk in the county of the decedent's residence and send a copy to the named executor. The person named as executor files a petition with the Superior Court asking that the will and any codicils (amendments) to the will be admitted to probate as the decedent's will. The petition also asks that the court appoint the person named in the will as executor. When the appointment is made, Letters Testamentary are issued.
If there is no will, the petition for probate asks that the court appoint the petitioner or some other person as administrator of the estate. When the appointment is made, Letters of Administration are issued.
We will prepare the petition for probate for your signature as soon as we have the necessary information.
The document called "Letters Testamentary" or "Letters of Administration" is a certificate issued by the County Clerk evidencing your appointment and authority as personal representative. During the administration of the estate, certified copies of the Letters may be requested by banks, title companies, transfer agents, tax authorities and others. We will obtain certified copies of the Letters for use when they are needed.
4. Notice to Creditors
The law requires publication of a Notice of Petition to Administer Estate. We will arrange for publication in the appropriate newspaper. This Notice also constitutes notice to all creditors of the decedent to file their claims against the estate. Creditors have four months following your appointment and the issuance of your Letters within which to file their claims. If a claim is not properly filed within that time, it is ordinarily barred. If you believe you may have a claim against the estate, please advise us. If a claim is required, we will prepare a claim for your execution.
YOU SHOULD THOROUGHLY CHECK THE DECEDENT'S RECORDS AND PERSONAL EFFECTS FOR EVIDENCE OF CREDITORS' CLAIMS, ADVISE US IMMEDIATELY so that we can send all known or reasonably ascertainable creditors personal notice to file their claims. This is now required by law; known or reasonably ascertainable creditors of the decedent who do not receive personal notice to file their claims do not face the time bar mentioned above. (Personal notice to such creditors may be given by mail)
5. Payment of Claims
Ordinarily, you may pay a properly approved claim with estate funds without incurring any personal liability. You may also pay any proper bill of the decedent without requiring a formal claim, but you will remain personally liable for such payment until it is approved by the court upon settlement of your accounts, YOU SHOULD CONSULT US BEFORE PAYING ANY CLAIM OR BILL.
6. Inventories and Appraisals
A personal representative is required to prepare a complete inventory of all assets owned by the decedent at the time of his or her death. The inventory is a very important document in the administration of an estate: It is the starting point for almost all the tax returns and for the accounting which must eventually be filed with the court. The assets listed in the inventory plus certain other non-probate assets (such as life insurance, joint tenancy property, and trust assets) comprise the decedent's estate for tax purposes,
After all of the estate's assets are listed on the inventory, the personal representative places a value on cash and some other similar items. The inventory is then submitted to the court-appointed probate referee. We will discuss with you whether an independent appraisal of any real property or other estate assets should be made. The fees paid to appraisers are proper expenses of the estate and can be claimed as estate or income tax deductions. Ordinarily, the independent appraisers' reports are submitted to the probate referee with the inventory and are also filed as part of the federal estate tax return.
Please make certain that insurance coverages on insurable assets are kept up to date and that the insurance amounts are adequate in light of the assets' appraised values.
We will prepare the estate inventory as soon as sufficient information is available.
7. Estate Bank Accounts
An estate checking account should be opened. Cash and uncashed checks in the possession of the decedent at the time of his or her death, except for cash in savings accounts, should be deposited in the estate checking account. All subsequent receipts should be deposited in the estate checking account and all disbursements should be made by check. Personal representatives should not commingle their own funds with estate funds. Substantial amounts of estate funds should not be kept for any appreciable period in the estate checking account. Instead, funds not required for current expenditures and distributions should be kept in an interest-earning estate savings account.
The decedent's savings accounts, if any, should be transferred into the estate's name. Since all estate receipts and disbursements should be recorded in the estate checking account, all deposits to a savings account should be by estate check and all withdrawals from a savings account should be deposited in the estate checking account.
8. Records and Accountings
Keeping careful records is an essential part of a personal representative's duties. You must either keep detailed records of all estate transactions yourself or, as discussed later, have someone else keep them for you. The record of estate receipts and disbursements will be needed in preparing the accountings required by the probate court. In addition, records will be needed for the preparation of estate and income tax returns. Checking and savings account records and statements supplied by stock brokers, trust company agents, mutual funds, and others provide much of the information needed to prepare accountings and tax returns.
9. Notices of Fiduciary Relationship
The federal and California tax laws require that personal representatives notify the respective taxing authorities of their appointment and of their discharge. The effect of these notices is to establish the place where the taxing authorities must send communications. For example, your filing of notices of fiduciary relationship will require the taxing authorities to send any notice of a proposed deficiency in the decedent's or the estate's income tax to you rather than to a beneficiary.
We will prepare Notices of Fiduciary Relationship addressed to the Internal Revenue Service and the Franchise Tax Board for your signature.
10. Taxpayer Account Numbers
The use of electronic data processing for federal income tax returns has resulted in the enactment of laws and regulations requiring the use of identifying numbers on tax returns. Every estate that is required to file any federal tax returns must apply for an employer identification number, which is the estate's tax account number. We will obtain such a number for you.
When you are asked by a payor of income for a tax number for the estate, you should furnish the estate's employer identification number.
11. Federal Estate Tax
The United States government levies an estate tax based on the decedent's right to transmit property at death. The estate tax is normally paid by the estate, but may be allocated and charged to the beneficiaries of the estate under certain circumstances. A return must be filed for the estate of a decedent who died in tax year 2008 if the estate has a "gross value" of $2,000,000 or more. "Gross value" includes the assets in the probate estate (listed on the inventory) and may also include certain assets that are not distributed by the decedent's will, such as life insurance proceeds, jointly-owned property, and assets previously transferred by the decedent in trust or otherwise. The federal estate tax is based upon the value of the assets included in the estate for tax purposes as of the date of death or, at the estate's option, as of the date six months after the date of death. The latter date is called the "alternate valuation date." The federal rule for calculating the value of an estate's assets on the alternate valuation date has exceptions, however.
If the alternate valuation date is elected and any asset is sold or distributed during the first six months following the date of death, the estate's assets are valued as follows: All assets not sold or distributed are valued as of the alternate valuation date, but any assets sold or distributed within the first six months are valued as of the date of sale or distribution. Therefore, if alternate valuation is elected, the sale or distribution of estate assets can affect the federal estate tax due.
Because of the opportunity of electing the alternate valuation date, the administration of the estate usually continues for at least one year. The federal estate tax return is due and the estate tax must be paid nine months after the date of death. You must sign the return as the personal representative.
Certain United States Treasury Bonds may be redeemed at par in satisfaction of the estate tax, even if the market value is less than par. If the estate holds any of these eligible bonds, they should not be sold until the federal estate taxes have been finally determined by audit and paid.
12. California Estate Tax
California does not have an inheritance tax, but it imposes an estate "pick-up" tax equal to that portion of the maximum amount of the credit for state death taxes allowable in determining the federal estate tax liability that is attributable to estate property located in California. To claim the state death tax credit, however, the estate must actually pay the "pick-up" tax to the state. Because the California estate tax is tied to the amount of the IRC §2011 state death tax credit, the tax does not apply to estates of persons dying after 2004.
13. Gift Taxes
If the decedent made any gifts in the year prior to his or her death, it may be necessary to file federal and state gift tax returns. California no longer imposes a gift tax, but some other states still do. Please supply us with copies of any gift tax returns filed by the decedent in prior years, as well as any information you have about any recent gifts. Itmay also be necessary to file delinquent gift tax returns for unreported gifts made by the decedent in prior years.
Gift taxes paid after death are deductible on the estate tax return, but any federal gift tax paid or payable with respect 10 gifts made within three years of the decedent's death must be included as an asset on the federal estate tax return.
14. Income Taxes
Final income tax returns must be filed for the portion of the year prior to the decedent's death and are due by April 15th of the following year. Extensions of time to prepare such returns can be obtained if necessary.
An estate is a separate taxpayer for federal and state income tax purposes. Personal representatives are responsible for filing estate fiduciary income tax returns. A federal fiduciary income tax return (Form 1041) must be filed for any tax year in which the estate earns gross income of $600 or more or if any beneficiary is a nonresident alien. A California fiduciary income tax return (Form 541) must be filed for any tax year in which the estate earns $1,000 or more of net (taxable) income, adjusted gross income of $12,000 or $8,000 of gross income or has any alternative minimum tax.
Unlike an individual, an estate is entitled to an income tax deduction for amounts of income or principal paid or distributed to certain beneficiaries during the year, who must in turn include those amounts in their income tax returns for that year. Significant income tax savings may be possible by proper planning.
15. Real Property Taxes and Change of Ownership Forms
You must plan to pay all real property taxes when due. The first installment of taxes on California real property is delinquent on December 10th, and the second installment is delinquent on April 10th.
The county assessor of each county in which the decedent held real property must be notified first of the change of ownership from the decedent to the estate; and then upon distribution of the real property from the estate to the beneficiary. The change of ownership may result in a reassessment for property tax purposes, depending on the relationship of the transferee. We will prepare the necessary change of ownership forms.
16. Expenses of Administration and Compensation of Personal Representative and Attorneys
The expenses of administering estates vary depending on many factors, only one of which is the size of the estate. The expenses of administration may include court fees, certification fees, surety bond premiums, the California probate referee's fees, agency fees, insurance premiums, expenses of selling assets, and the personal representative's, accountants', and attorneys' compensation. The largest costs are usually the compensation of the personal representative and the attorneys.
a. Compensation for Ordinary Services of Personal Representative and Attorneys
As personal representative, you are allowed compensation for your services. Unless the will makes special provision for your compensation, the amount of compensation for your "ordinary" services is fixed by California statute and is based on the value of the estate accounted for. This value generally includes the inventory value of the probate estate and income received during the period of administration. Compensation can be paid only after the court orders payment. Compensation for ordinary services of the personal representative and the attorney is calculated based on the amount of the estate accounted for as follows:
4% on the first $100,000 or fraction thcreof;
3% on the next $100,000 or fraction thereof;
2% on the next $800,000 or fraction thereof;
1 % on the next $9,000,000;
1/2% on the next $15,000,000; and
A reasonable fee on the excess over $25,000,000.
Thus, the compensation for the personal representative and for the attorney for an estate of $500,000.00 would be calculated as follows:
4% on $100,000     $ 4,000
3% on $100,000     $ 3,000
2% on $100,000     $ 6,000
Total                $13,000
Of course, the value of the estate willbe based on the probate referee's valuation. For purposes of this section, the value of the estate accounted for by the personal representative is the total amount of the appraisal value of the property in the inventory, plus gains over the appraisal value on sales, plus receipts, less losses from the appraisal value on sales, without referenceto encumbrances or other obligations on estate property.
Your UAW NUMMllegal benefit plan will cover the attorneys fees. You need to let us know if you will be claiming a personal representative's fee.
b. Compensation for Extraordinary Services of Personal Representative and Attorneys
In addition to the statutory compensation discussed above, the probate court may, in proper instances, authorize payment of additional compensation to the personal representative and/or to the estate's attorneys for "extraordinary" services rendered in the administration of the estate. There is no prescribed schedule of compensation for such services. The amount ineach instance is fixed by the court on the basis of a declaration by the applicant as to the nature and extent of the extraordinary services rendered to the estate.
For example, if it were necessary for you to carry on the decedent's business under court order or to participate in litigation involving the estate, such services would be regarded as in addition to the ordinary services you are expected to render in administering the estate, and you would be entitled to apply for and receive additional compensation for such services.
Similarly, we as attorneys (and our paralegal assistants) are frequently called upon to perform legal services in connection with the administration of an estate that are regarded as extraordinary in nature and are not covered by the statutory compensation provided for by the Probate Code. Such services may include the following, fairly common situations: handling sales or mortgages of real or personal property; contesting or defending litigated claims against the estate; preparing the federal and/or state estate, inheritance, gift, income, sales, property, or other tax returns; representing the estate in an audit or litigation concerning any of those taxes; handling litigation relating to property of the estate; arranging for the conduct of ancillary administration in other states where the decedent owned property; and preparing petitions for instructions, to determine heirship, and for preliminary distribution. Our compensation for extraordinary services is based primarily upon our hourly rates from time-to-time prevailing, taking into account the size and complexity of the matter at issue, the results achieved and the benefit ultimately conferred upon the estate. We will periodically consult with you regarding the probable compensation to be incurred as matters calling for such "extraordinary services" arise. Of course, all extraordinary compensation must ultimately be approved by the court after a noticed hearing.
e. Agents for Personal Representatives
An individual who is not an experienced fiduciary is entitled to receive the statutory compensation for serving as a personal representative, even though he or she does not have the training or experience required to perform all the personal representative's duties. We have found that many estates can be more efficiently administered if a nonprofessional personal representative hires others to perform some or all of the services that he or she is expected to perform. The most common examples are examining records of the decedent for information as to assets or claims, establishing and maintaining estate bank accounts, receiving income and making disbursements, maintaining the accounting records, and preparing periodic accounting reports. However, a personal representative is generally not entitled to reimbursement from the estate for the expenses incurred for such services. Most courts consider such expenses to be expenses of the personal representative, which must be paid from his or her compensation.
If you wish to engage an agent to perform ministerial functions, there are several alternatives available. Banks and some accountants serve as probate agents. Our firm is also equipped to perform such services. If you wish us to do so, we will arrange compensation for such services that will be billed to you individually and will be separate from our compensation as attorneys for the estate. Our total compensation for the agency services will not exceed the statutory compensation to which you are entitled.
d. Waiver of Representative's Compensation
Compensation paid to a personal representative is taxable income to him or her. Under some circumstances, a personal representative who is also a beneficiary may benefit by waiving his or her right to receive compensation. We will discuss this option with you at an early stage in the estate administration proceedings.
17. Family Allowance
During the probate of an estate, a surviving spouse and minor children are entitled to a family allowance for their support, commencing with the date of death and continuing until further order of the court. The family allowance is obtained through a petition to the court, which sets the amount to be allowed. If a family allowance is considered advisable, we will take the necessary steps to obtain it. A family allowance will be taxable as income to the recipient.
18. Preliminary Distributions
It is not necessary to wait until the estate is ready to be closed before making any distributions. The Probate Code specifically provides for preliminary distributions. However, a preliminary distribution may not be made before two months after the Letters Testamentary or of Administration are issued. If a distribution is made between two and four months after Letters are issued, a bond may be required to protect the rights of creditors. If a distribution is made more than four months after the Letters are issued, that is, after creditors' claims are barred, a bond is not usually required.
You may want to make a preliminary distribution of any cash or other specific bequests provided for in the will. You may also want to make a preliminary distribution of income or principal to establish a trust created by the decedent's will. However, as indicated in paragraph 14, above, income tax considerations may affect the proper timing of distributions and may make it preferable to delay any substantial distributions other than those to specific, demonstrative, and general legatees.
Of course, an appropriate court order is required before you make any preliminary distribution.
19. Final Distribution
When all debts and taxes have been paid and the estate is ready for final distribution, we will prepare for your signature a final account, report, and petition for final distribution, based on your records of receipts, disbursements, and assets on hand. If all is in order, the court will enter an order approving your account and report and ordering distribution of the remaining estate assets. This normally takes approximately three weeks after the petition is filed. We will then help you distribute the assets and obtain the necessary receipts from the beneficiaries.
The foregoing is only a general outline of the more important aspects of the administration of an estate. There will no doubt be additional matters in your decedent's estate, but we can discuss those as they arise. We will attempt to keep you fully informed about each significant step in administration of the estate.
We hope that administration of the estate can be completed as quickly and efficiently as possible and with a minimum of inconvenience to you. We are looking forward to assisting you.
Very truly yours,
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San Lorenzo, CA 94580
Phone: (510) 278-0800