INSTRUCTIONS FOR THE PERSONAL REPRESENTATIVE OF A WASHINGTON ESTATE
You may be or have been appointed by the Superior Court of a Washington county as the Personal Representative of the Estate of a Washington decedent. The Personal Representative is sometimes called the “Executor” or, if there was no Will, the Administrator.
After you are appointed, you, and only you, have legal authority to manage and distribute the Estate assets without further Court supervision, provided the Estate assets exceed the Estate liabilities. That is, the Estate must be solvent. Confer with me, before you take any major actions, such as selling significant assets or paying creditors or making distributions to beneficiaries from the Estate assets.
As Personal Representative of the Estate, you are a fiduciary with respect to the beneficiaries of the Estate. This means that the Court will hold you to the highest standard of conduct, and you will be accorded very little slack if there are disputes concerning your management of the Estate. You must keep accurate records of every transaction. Leave a paper trail, and keep it organized. You must meticulously keep estate assets separate from your personal assets. You must preserve and take care of Estate assets, as any person of ordinary prudence would care for their own property. You must place the interests of the Estate beneficiaries above your own. If the Estate suffers losses, you might be held personally accountable. Any beneficiary can call for an accounting of your activities and the Estate assets. This is serious business. Treat it as such.
If you have any additional questions about your responsibilities as Personal Representative, please ask me as soon as possible, so that I can instruct you as needed.
YOUR DUTIES GENERALLY
The Personal Representative of an Estate must:
1. Identify Estate assets,
2. Determine the date-of-death values of the Estate assets,
3. Protect the Estate assets,
4. Gather the Estate assets,
5. Identify bona fide creditors of the Estate,
6. File all the appropriate pleadings with the Court,
7. File all the appropriate tax returns with governmental agencies, and
8. Distribute all the Estate’s assets.
The Estate assets include property of every kind in which the decedent had an ownership interest. The Estate’s assets might include, among other things:
a) real property (houses, buildings, land, options, mineral rights, leases),
b) business interests (sole proprietorships or partnerships and their blue sky),
c) personal property (furniture, cars, pictures, and so forth),
d) money (bank accounts, cash, mutual fund shares, stock, bonds)
e) notes (promises to pay money),
f) intangible property (patents, copyrights, trade secrets),
g) legal claims against others (personal injury, pending lawsuits), or
h) any other thing that a person can possess or have a legal possessory interest in.
The timing and order in which you distribute the Estate’s assets are determined by the laws of Washington State.
ADMINISTERING ESTATE ASSETS
You must identify, protect, and gather Estate assets. Be systematic. Go through every piece of paper in the decedent’s possession (including all check books, bank statements, income tax returns, correspondence, other financial records such as bills and receipts). As you go, make a list of assets (with identifying numbers) and creditors (with addresses and phone numbers). Turn over every stone. Speak with every family member and person who knew the decedent intimately concerning what the decedent owned and what the decedent owed. Ask about possible lawsuits, promises to pay that were informal, and informal loans to people. Find every asset and liability. I enclose a questionnaire for your use as you investigate the decedent’s affairs. Fill it out carefully. We will use it to demonstrate to the Court that you have diligently sought out all reasonably ascertainable creditors and estate assets.
I recommend that you create the following filing system: 1) purchase at a local office supply store a plastic box with lid made to hold hanging letter-size files, 2) purchase 50 letter-size hanging files with labels, 3) make one hanging file for each asset (bank account, car, house, mutual fund), 4) make one hanging file for each potential creditor, 5) make one hanging file for Pleadings, 6) make one hanging file for Communications, and 7) make one hanging file for Attorney. As you identify assets and creditors, note it on the Probate Questionnaire and label a hanging file. Put all information related to an asset or liability in its labeled hanging file. When I send you Court documents, put them in the Pleadings hanging file. When you write a letter not related to an asset or liability, or anyone sends you a letter not related to an asset or liability, file it in Communications. Put this letter and any subsequent correspondence to or from me in the hanging file labeled Attorney. If you create this filing system, your work as Personal Representative will be immensely simplified, and our communication will proceed more smoothly.
Approximately ninety days after your appointment as Personal Representative, we will submit an Inventory to the Court. Any beneficiary can demand in writing a copy of the Inventory with values attached after the ninety day period has elapsed.
1. You will want to determine the date-of-death value of each asset (and the year’s interest to date of death on financial assets). The date-of-death value becomes the new cost basis for tax purposes, so these numbers will have continuing significance, and should be determined as accurately as possible. Some difficult items may require appraisal. Check with me before ordering an appraisal.
2. You will also want to determine whether each asset is a probate or non-probate asset. Probate assets are those subject to administration by the Personal Representative and the Court. Non-probate assets pass to some person upon the decedent’s death by contract or operation of law. For example, proceeds of life insurance policies are non-probate assets, unless the beneficiary is the Estate itself. Banks accounts held in joint tenancy with right of survivorship (JTWROS) become the possession of the joint tenant upon the decedent’s death. IRAs and KEOGH accounts and some pension plans may pass directly to a designated beneficiary, bypassing probate. Since the income tax may have been deferred on these assets, the Estate may owe that income tax, even if there is no estate tax due. It may be wise to consult a CPA in making decisions concerning tax-deferred assets. You must inventory non-probate assets as well as probate assets, because non-probate assets are counted for estate tax purposes.
3. Even though non-probate assets pass outside probate, the new owner of the non-probate assets may be required to contribute to pay the Estate’s obligations, including the costs of the Estate’s administration. RCW 11.18.200.
4. Personal effects and household furniture and furnishings do not need to be separately itemized in the Inventory, unless they are especially valuable. They will be placed in a catch-all category, Other Personal Property.
ESTATE BANK ACCOUNT
After you have gotten the Estate’s Employer Identification Number (EIN) from the Internal Revenue Service (which we will apply for), a death certificate, and your Letters Testamentary or Letters of Administration, you can open the Estate bank account. (If no Estate funds are immediately available, open the account with your funds, and repay yourself at the earliest possible moment in the exact amount of what you deposited.) DO NOT USE YOUR OWN SOCIAL SECURITY NUMBER TO OPEN THE ESTATE BANK ACCOUNT. It may be wise to use a convenient branch of a bank other than your personal bank, to avoid any possible confusion of assets. As the Estate’s assets are accumulated or liquidated, deposit the funds into this account, and no other. Be certain to open an account in which the physical checks are returned to you on a monthly basis, even if there is an extra charge for this service.
PAYING ESTATE CREDITORS
Washington law requires that a Notice to Creditors be filed with the Court, and then published once a week for three consecutive weeks in a court-approved newspaper. Our office will take care of this task. A four-month claims period begins to run on the date of the first newspaper publication of the Notice to Creditors.
After you identify what appears to be a potential creditor, send me the invoice or other documentation concerning that creditor. I must send that creditor a Notice to Creditors. Any creditor who is not given this Notice until the fourth month of the creditor period will have thirty (30) days from the date of its Notice to make its claim. Pay no creditors until you have, in consultation with me, determined that the Estate is solvent. Pay no creditors unless they file a pleading called a Creditor Claim. If the Estate is insolvent, and you pay the wrong creditors, you might end up personally liable to those creditors of the Estate who should have legally been paid.
Debts incurred before the decedent died are called “creditor claims.” Debts incurred after the decedent died are called “administration expenses.” Administration expenses include court filing fees, real estate taxes, attorney fees, accountant fees, and any ongoing maintenance or other services related to the Estate assets. Administration expenses have first priority, and may be paid any time.
Creditor claims include credit card bills, medical bills, mortgages, bank loans, and so forth. A statutory process is set out for paying these bills. Two paths exist, but I recommend only the first. (The other path is to send Notice to Creditors to no one. If potential creditors fail within two years to make their claim, the claim is cut off. You do not want to keep the probate open that long, if possible to do otherwise.) The path I recommend is to identify potential creditors by going through all the decedent’s papers and talking with those who should know of claims. We then mail a Notice to Creditors to each potential creditor, which apprises them that a probate has commenced and they should make their claims if they have any. After four months, if the creditor fails to file a Creditor Claim, the claim is forever cut off and void. After you (or we) have received a Creditor Claim, evaluate the claim.
Do not pay any claims until we determine the Estate is solvent, and have an opportunity to determine the validity of the claim. However, if you receive a Creditor Claim you believe is invalid, call me immediately. You have only thirty (30) days to reject a Creditor’s Claim of less than one thousand dollars. Any claim upon the Estate that may be invalid should be brought to my attention immediately.
After the four month creditor claim period has elapsed, we will file a pleading that creates a presumption that you have done everything necessary to find potential creditors. That will cut off those who have not made claims. No claim need be paid, if the creditor has failed to serve a Creditor Claim. You may, however, wish to pay some claims where no Creditor Claim was served, depending on your assessment of those claims and your perception of the sentiments of the deceased. Paying an invalid claim may be cheaper than fighting it. Please discuss any such decision with me before you make payment of a claim for which no Creditor Claim is received. Doing so violates the statute.
If the gross estate has a value of less than then-current exclusion amount for Washington State or federal Estate and Gift taxation, then no federal or state estate taxes will be due. If that is so, we should be able to avoid filing a Federal Estate Tax Return 706. The estate may owe federal or state Estate and Gift tax obligations. If the estate controls substantial assets, this issue must be explored with me and a certified public accountant.
You will have to file at least two income tax returns. The first is the decedent's final personal income tax return (Form 1040) for the taxable year in which the decedent died from January first of that year to the date of death. The second tax return is the Estate’s tax return, and it encompasses income the Estate gathered from the date of death to the end of the Estate’s taxable year, filed on Form 1041, “United States Fiduciary Income Tax Return.” If the Estate earns more than $600.00 in a tax year, the 1041 return must be filed. Beginning the second tax year of the Estate’s existence, you will be required to file quarterly estimated tax payments, if the Estate is expected to owe at least $500.00 in taxes.
ATTORNEY'S FEES AND COSTS
My fees are based on the number of hours of my time or my paralegal’s time required to probate the Estate, as specified in the Representation Agreement we have signed. When possible, I have my paralegal do Estate work, to keep Estate fees and costs as low as possible. You, as Personal Representative, can reduce the expenses charged to the Estate by thoroughly executing your tasks, and presenting us with organized, legible information. I submit bills monthly for the ongoing probate work on the decedent’s Estate. You may pay my bills monthly, though the full amount of the charges for my work may finally be subject to Court approval. You may elect to take my attorney’s fees as a deduction on the estate’s income tax return, Form 1041.
PERSONAL REPRESENTATIVE'S FEES
You, as the Personal Representative of the Estate, are entitled to be paid a fee from the Estate for performing your responsibilities, unless the Decedent’s Will says otherwise. Such a fee is taxable income to you, as opposed to distributions to you as a beneficiary. You should keep a regular log of the time you spend on your duties, broken down by task, as well as any expenses incurred working for the Estate: mileage, postage, long distance telephone charges, and so forth. You must keep receipts for all cash expenditures. We must have a paper trail to present to the Court. We will use your log and receipts to calculate a reasonable fee for you, and justify it to the Court. I include several copies of a Personal Representative’s Time and Cost Log for your use. Please fill it out religiously, and send me a copy each month.
After the four month period has expired and we have evaluated the Creditor Claims and all tax returns have been filed and taxes paid, then we shall pay the administrative expenses of the Estate, pay bona fide creditors of the Estate, and distribute the residue (what is left after all encumbrances are satisfied) to the beneficiaries according to the Will, or, if there is no Will, according to statute.
There is some possibility of a creditor popping up after the Estate has been closed. Should a creditor do so, and should that creditor succeed in proving to the Court that it should not be cut off by the statute of limitations on creditor claims, the Court may require the beneficiaries to whom assets have been distributed to contribute to paying that creditor’s claims. Steps can be taken to make any such event less likely. First, after the four month creditor claim period has elapsed, we can seek a court order indicating that you have done all that can be asked to identify reasonably ascertainable creditors. Second, if there are severe problems with unidentified creditors, we can hold the estate open for two years, after which all creditors are cut off. When the four month creditor claim period has elapsed, we shall discuss the status of the Estate, and determine what steps, if any, are appropriate in your circumstance.
OUR ATTORNEY-CLIENT RELATIONSHIP
By Washington law, I am your attorney. But, also under Washington law, my fiduciary duties extend to all the beneficiaries of the Estate. I am confident that you will fulfill your duties as Personal Representative faithfully. If you do not do so, however, you put me in a very difficult position. The dilemma is this: if I reveal any wrongdoing on your part, I am not being loyal to you and maintaining your confidences, but if I do not reveal wrongdoing on your part, then I am not being loyal to the Estate’s beneficiaries. Washington rules of professional conduct authorize me to disclose to the court any wrongdoing on your part. If the Estate’s assets are wasted, neglected, or mismanaged by you, you may be personally subject to civil and/or criminal actions. And I shall withdraw. This is a serious responsibility you have undertaken, and the Court will hold you to the highest standard of conduct. To protect yourself, do three things: be scrupulously honest, be thorough and methodical, and communicate frequently with me and the beneficiaries.
If you have any questions that are not addressed by these instructions, please contact me immediately.