When Is an Estate Settlement Final?

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An estate is opened when the court is notified of a person’s death. If a will exists, it is examined to see who will administer the estate. If there is a trust, a contingent trustee will be responsible for executing the estate. An estate closes once all the business of deceased is finalized and assets have been disbursed.

Assets And Liability Inventory

To finalize an estate, the executor creates an inventory of all assets and liabilities. Keep all assets separate from personal assets, and place the executor’s name on all statements to facilitate distribution to beneficiaries. Manage all property on behalf of the estate until given to beneficiaries. Separate debt into unsecured debt, which must be paid and debt secured by an asset that may be transferred to a beneficiary. Give all beneficiaries a list of the estate contents, debt and a copy of will or trust if applicable.

Estate Defended

Beneficiaries or others who are unhappy with the direction of estate administration or assets may petition the court. Before the estate can be finalized, the estate must be defended against these claims. Work with an attorney to settle all claims against the estate before disbursing assets.

Final Tax Return Filed

The final tax return, composed of all the deceased’s income from Jan. 1 until the date of death, is listed on Form 1040. All income after death should be placed on Form 1041, the estate’s tax return. This return uses a separate tax identification number that is requested directly from the IRS. The estate may pay the income tax from funds before disbursing to beneficiaries or a K-1 can be issued to beneficiaries to pay their portion.

Debt Paid

Before an estate is finalized, the debt must be paid. Pay no debt until all assets and liabilities are accounted for. Once the estate is cataloged, legitimate claims against the estate must be paid. Attorney fees, executor costs and unsecured debt are paid before estate assets are distributed. Secured debt may be transferred along with the securing asset, such as a house or automobile, to a beneficiary. If debt exceeds assets, sell all assets and pay creditors as directed by your attorney or probate court. Inform beneficiaries of the financial position of the estate.

Beneficiaries Paid

Estate assets must be paid according to the will, trust, or probate court direction. Regardless of will or trust, assets such as life insurance and IRAs paid to named beneficiaries cannot be used to pay off estate debt. Close accounts when all assets have been moved to avoid unnecessary fees. Document all asset disbursement by keeping a copy of transaction records.

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