How To Decide If A Deceased Person Can Be Distributed From A Will

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1 ADMINISTERING THE ESTATE Because family dynamics often play a key role in the complexity of estate administration, it is often wise to evaluate potential opponents to your client's actions both before and after appointment as personal representative of the estate. While this paper is intended to address the administration of estates where a personal representative (Administrator or Executor) has been duly qualified and Letters of Administration or Letters Testamentary have been issued, the final section addresses consideration during the pendency of a contested Probate Court proceeding. A. Filing for Appointment of a Personal Representative The preceding section addresses the specific filing requirements. However, there are circumstances where it is unclear whether the Decedent died testate or intestate. If no will is known to exist, it may be beneficial to conduct a thorough search of the Decedent's personal effects to locate a potential will. An heir may also petition the Probate Court for Authority to open the Decedent's Safe Deposit Box. A sample Petition is attached as Exhibit A. While it is not always necessary for an heir to file the Petition, it is likely that the Probate Court will require consent from the heirs if a non-family member files such a petition. If no will exists and the family members agree to a distribution of the Decedent's estate, it may be possible to file a Petition for Order Declaring No Administration Necessary. Under a 2000 amendment to code section (a), real property vests immediately in the decedent's heirs, and thus no administration would be necessary if there are no estate debts to be paid. However, title is subject to divestment by the appointment of an administrator of the estate. If the only asset in the estate is a vehicle, the Georgia Department of Motor Vehicles has a form (currently T-20A) which may be used to pass title without administering the estate under limited circumstances. See Exhibit B. If a valid will exists, and the beneficiaries agree to a distribution other than that set forth in the will, the beneficiaries may wish to file a Petition for Approval of Settlement Agreement. All sui juris beneficiaries will have to consent to the Petition, or a guardian ad litem will have to be appointed and consent on behalf of a non-sui juris beneficiary, and a hearing will have to be held before the Probate Court to determine that a bona fide controversy exists. See O.C.G.A B. Checklist: Representing the Personal Representative During the initial meeting with the personal representative, prepare a preliminary inventory of estate assets, as well as any assets passing outside the

2 estate which would be included for estate tax purposes. See Exhibit C for a form useful in this regard. Determine at the outset whether the estate is taxable; if so, it is generally advisable to retain a tax expert such as a CPA or tax attorney. This list should include: (1) perishable property (furniture, motor vehicles, mobile homes, boats, trucks, aircraft, etc.); (2) real property; (3) any collections of value (i.e. coins, antiques); (4) real estate; (5) stocks or bonds; (6) any mortgages, notes or other liens or debts on property; (7) any bank accounts, savings accounts, certificates of deposit or other financial institution accounts. Be sure to note any actual or alleged joint interest in any account; (8) life insurance; and (9) any safety deposit box contents. For estate tax purposes or for eventual sale of assets, it may be advisable to obtain appraisals of real and/or personal property. 1. Inventory Regardless of whether the personal representative will be required to file an inventory and returns with the probate court, the personal representative should conduct an inventory of all estate personal property and assets. Be sure to include safe deposit boxes. An inventory assists with preparation of tax returns, distribution of property, and otherwise records the value of an estate. It is useful for making in-kind distribution of assets to the heirs and beneficiaries, where such distribution is possible due to the solvency of the estate. 2. Communicating with the heirs and beneficiaries

3 Georgia has not made a clear designation as to who is the client when an attorney represents the personal representative of the estate. Other jurisdictions have held that: (1) the estate is the client; however, this view may jeopardize the relationship between the attorney and the fiduciary by creating an attorney-client relationship between the attorney and the heirs or beneficiaries. Further, the personal representative may be unprotected in fiduciary litigation under this viewpoint; (2) the personal representative is the client. This view, which is the majority view, prevents counsel from having any responsibility to the heirs and beneficiaries; and (3) the personal representative and the heirs or beneficiaries are the client. Under this position, the attorney represents the personal representative but only to the extent that the personal representative's actions are a proper exercise of their fiduciary duties. The estate may not be liable for litigation expenses if the personal representative's actions are not a proper exercise of their fiduciary duties. See Armstrong v. Boyd, 140 Ga. 710, 79 S.E.2d 780 (1913); see Hudson v. Abercrombie, 258 Ga. 729, 374 S.E.2d 83 (1988); Ross v. Battle, 113 Ga. 742, 39 S.E.2d 287 (1901); Nesmith v. Pierce, 226 Ga. App. 851, 487 S.E.2d 687 (1997). In order to make the attorney-client relationship clear to all involved, it is important to communicate with all interested parties. After preparing an engagement letter to your client, prepare a letter to the heirs or beneficiaries, informing them that (1) your client is now the personal representative of the estate; (2) that inquiries regarding estate administration should be made to you in writing; and (3) while you are available for inquiries as to the status of the estate administration, you do not represent them individually and they may want to retain their own counsel if they have questions regarding their rights. 3. Notice to Debtors and Creditors Within 60 days after qualification and receiving Letters, the personal representative must file a notice to debtors and creditors in the legal organ for the county in which probate was granted. The notice to debtors and creditors must be published once a week for four weeks. The notice directs creditors of the estate to present their claims to the personal representative of the estate. It also gives the honest debtor an opportunity to pay to the estate any debt which the personal representative may not have had knowledge. A sample notice is

4 attached as Exhibit D. The effect of a creditor filing a notice of their claim is that they are able to participate on an equal basis with creditors of the same priority. A creditor who fails to file notice of a claim within three months after the last publication of the notice forfeits their right to participate on an equal basis with creditors of the same priority to whom the personal representative has already made distribution by that time. Creditors who fail to file in a timely manner also may not hold the estate or the personal representative liable for misappropriation of funds. However, if there are funds available and no claims of higher dignity are still outstanding, the assets must be used to pay the creditor regardless of his lack of timeliness. 4. Reporting to the Probate Court Both you and your client will want to diary your calendars for filing deadlines such as annual returns and inventories, if applicable. Even executors are often required to report to the beneficiaries on at least an annual basis. If the personal representative is not relieved of filing inventories, the inventory is due within six months of qualifying. The personal representative is under a duty to supplement the inventory as new assets are discovered or received. If an inventory is required to be filed with the Probate Court, make sure that the inventory includes only estate assets, not assets which pass outside the estate (i.e. life insurance benefits with a beneficiary designation other than the estate, etc.). Including non-probate assets in an inventory causes confusion to the heirs, may require explanation to the probate court as to why such assets have not been distributed and noted on inventories, and may raise questions as to whether or not such assets are in fact estate assets. Annual Returns are due each year within 60 days of the anniversary date of the personal representative's qualification. Heirs and beneficiaries must be served with a copy of the return; the personal representative has certified that the mailing has occurred by signing the return form. Failure to file timely and accurate inventories and returns is grounds for removal of the personal representative. In re Estate of Jackson, 241 Ga. App. 392, (1999); Lokey v. Lokey, 82 Ga. App. 171 (1950). The return should summarize all income and distribution coming in and going out of the estate. Because the form space is limited, you may need to categorize the entries. It is advisable to document commissions based on these returns so that any questions as to calculation can be easily resolved. Applicable commissions and allowances, unless established in the will or by agreement, are

5 found in code section C. Collecting Assets 1. Marshaling assets known to be estate assets Obtain certified copies of the personal representative's Letters, for provision to financial institutions and other persons in possession of estate assets. A bank account should be opened for deposit of estate assets and payment to creditors, in the name of the estate and the personal representative in their representative capacity. The personal representative will need to obtain death certificates, which may be necessary for payment of estate assets. Either you or the personal representative should review all of the decedent's personal papers to locate any potential assets, as well as potential debts of the estate. Credit card records, financial records, checkbooks, life insurance policies, deeds, and other records may provide pertinent information. It is sometimes advisable or necessary to conduct an asset search of there is no trustworthy person with current knowledge of the Decedent's affairs. 2. Declaratory Judgments If assets are located and there is a question as to whether or not they are in fact estate assets subject to distribution, both the Probate Court and the Superior Court have jurisdiction to entertain an action for declaratory judgment. However, questions regarding title to real property should be raised in the Superior Court. Because the personal representative has fiduciary duties to the heirs and beneficiaries, declaratory judgments should be considered where the personal representative's interest in the subject asset conflicts with the heirs and beneficiaries, and where there are reasonable grounds to believe the estate has an interest in an asset. 3. Tax-related Considerations While this is not intended to be a comprehensive discussion of tax issues, there are numerous tax considerations that arise at death, and even in small estates it may be advisable to consult with a tax attorney or CPA. In larger estates where there may be estate tax consequences, retention of tax professionals is generally necessary. The personal representative will need to determine whether or not tax returns have been filed for the estate for the prior year. If the decedent made any gifts for which returns should be filed, a determination will need to be made in that regard. The attorney should determine whether an estate tax return or a

6 fiduciary income tax return needs to be filed. Tax identification numbers will need to be obtained. Prepare an SS-4 and obtain a tax identification number for your personal representative and for the estate. Also prepare Form 56 (Notice of Fiduciary Relationship) for provision to the IRS. Determine date of death values for all assets. While appraisals can be used to determine such values for real property, other calculations permitted under the tax code should be considered. 4. Protecting Estate Assets The personal representative has a duty to avoid waste, and therefor has an interest in protecting estate assets. Cancel open orders with brokers and review potentially volatile assets. Some assets may need to be sold; an administrator without powers will be required to file a Petition for Leave to Sell Property. Also, a Petition for Leave to Sell Property should be filed for a temporary administrator or executor pendent lite (common form executor) during the pendency of estate litigation. The personal representative will need to change the mailing address for the decedent to their address. The Post Office should be notified to forward Decedent's mail to the personal representative. The personal representative will also need to cancel credit cards, subscriptions, memberships, and other expenses that should not be continued. It is advisable to notify creditors of the Decedent's death as soon as possible, especially in small estates where it may be necessary to wait the statutory six-month period (or more) to have liquidity to pay estate debts. Any potential medical insurance benefits should be pursued in order to decrease the estate's liability. Any estate property which had been loaned out should be brought back into the estate's control. O.C.G.A The personal representative has no authority to loan estate assets, except as provided in a valid will or Code section if powers are granted. 5. Pre-Distribution Considerations If there are heirs or beneficiaries who are deceased, whether they predeceased or post-deceased the Decedent, a determination will need to be made as to distribution to such persons or their estate, heirs, or assigns. If the heir or beneficiary's estate does not have a personal representative, you may need to file a Petition for Judicial Determination of Heirs. The Petition should be filed in the county in which your personal representative is qualified and the proceedings for your estate were filed. If a vehicle is going to be driven, used, or not immediately sold, insurance will need to be obtained for the vehicle. If sale of vehicles, furniture, or other

7 "perishable property" is necessary or desirable, an Administrator or Executor without powers may need to file a Petition for Leave to Sell Perishable Property. Similarly, approval to sell real property can be obtained through a Petition for Leave to Sell. Funeral expenses should be paid promptly; often, a family member has already paid such expenses and will need to be reimbursed if the estate has the assets to do so. Because the ability to pay for a grave marker often depends on the solvency of the estate, it should be determined whether the personal representative or the family will pay for such expense. 6. Social Security Benefits Social Security will need to be notified of the decedent's death; the phone number for the Social Security Administration is Social Security Administration also has a website: If the decedent received monthly benefits by direct deposit, the bank or other financial institution should be notified of the beneficiary's death. The financial institution should be instructed to return funds to Social Security for the month of death and any subsequent months. If the benefits were mailed directly to the decedent, checks should not be cashed, but rather returned to Social Security as soon as possible. The surviving spouse is entitled to a one time payment of $ if he or she was living with the Social Security beneficiary at the time of death. If they were living apart, the spouse is also entitled to the one time payment if he or she is listed on the beneficiary's earning records. If there is no surviving spouse, a child who was eligible for benefits on the beneficiary's earning record during the month of death is entitled to receive the payment. Other survivors may be entitled to benefits, including the beneficiary's widow or widower, dependent children, or dependent parents. The website and phone number listed above can provide more information in regards to such benefits. D. Claims against the Estate The statutory priority of debts appears in Code Section , as follows: (a) years support (which must now be filed with 2 years). As this is a claim adverse to the estate, separate counsel will need to be retained if the personal representative is also the Petitioner; (b) funeral expenses, whether or not the decedent leaves a surviving spouse, in an amount which corresponds with the circumstances of the decedent while in life. If the estate is solvent, the personal representative is authorized to provide a

8 suitable protection for the grave of the decedent; (c) the other necessary expenses of administration (including attorney's fees, filing fees, etc.); (d) reasonable expenses of the decedent's last illness; (e) unpaid taxes or other debts due this state or the United States; (f) judgments, secured interest, and other liens created during the lifetime of the decedent, to be paid according to the priority of lien. Secured interest and other liens on specific property are preferred only to the extent of such property; (g) all other claims. All personal representatives have six months from the date of qualification during which they are immune from suit on debts of the estate. The exemption period is intended to give the personal representative time to familiarize themselves with the condition of the estate, to protect against paying out assets outside the statutory priority of debts, and to organize the debts pursuant to the statutory priority of debt. However, the personal representative can waive this protection period by expressly consenting to a suit prior to the expiration of six months. However, if a creditor has a security interest, such as a security deed on real property, generally that creditor may pursue collection prior to the expiration of the six month period. The language of the security deed will control. For this reason, if the personal representative is not fully aware of all mortgages, notes and liens on property, it is advisable to conduct a title search to determine any potential claim which might result in foreclosure for non-payment. To avoid this expense, the personal representative may want to wait a month or two after qualification to review mail the estate receives for any invoices evidencing a debt. Because a year's support claim takes top priority in the distribution of assets, no distribution of assets should be made prior to the determination of years support. In the case of a small estate, where there is a question of whether or not there will be sufficient assets to pay all claims, it is advisable to contact the creditors and attempt to negotiate the claim. Many creditors, including credit card companies, are likely to automatically offer a 20%-30% reduction in the amount owed. Personal representatives are authorized to compromise, adjust, arbitrate, sue on, defend against, abandon, or otherwise deal with or settle claims in favor of

9 or against the estate. O.C.G.A Alternately, the personal representative may assign the claim to a creditor or an heir or a beneficiary. Id. E. Considerations in Contested Proceedings For purposes of this discussion, "contested" refers to circumstances (1) where litigation over a Petition for Letters of Administration or to probate a will is anticipated; (2) where there is ongoing litigation regarding the validity of a will or selection of a personal representative and a temporary administrator or executor pendent lite has been, or needs to be, appointed; and (3) where a personal representative has qualified and been issued Letters, but family dynamics make standard administration difficult or impossible. The suggestions herein are not necessarily legal requirements, but they may avoid additional litigation or administration expenses. 1. Pre-Permanent Appointment Considerations When your client anticipates that a caveat will be filed to a Will or a challenge will be made to a Petition for Letters of Administration, otherwise routine correspondence with heirs or beneficiaries will need to be altered. For instance, rather than sending acknowledgments to heirs or beneficiaries, which would place them on notice of the upcoming proceedings, you will probably want to file your Petition immediately with the Probate Court. By doing so, the statutory requirements for notice, and the time period for filing objections, will control. Further, consider whether you will need to file a Petition for Temporary Letters of Administration, Petition to Probate in Common Form, or other means of handling estate affairs during the pendency of litigation over the administration or probate. Letters of Temporary Administration, during the pendency of a probate proceeding, provide more protection for the personal representative because the probate court must pre-approve all of the Temporary Administrator's actions. The Temporary Administrator must obtain court approval prior to paying any debts, selling any property, or otherwise acting on the estate's behalf. However, if the parties agree, a temporary administrator may seek approval to pay certain expenses, such as utilities, on an ongoing basis throughout the pendency of the litigation. Because of the necessity of multiple filing with the probate court, temporary administration is cost-prohibitive for smaller estates. However, a common form executor (referred to as executor pendent lite) has more freedom to manage estate assets. Their actions are not as protected from later claims by the heirs and beneficiaries unless they, too, obtain probate court approval or consent of their heirs and/or beneficiaries prior to acting. The Petition to Probate in Common Form must be filed before or simultaneously with a Petition to Probate in Solemn Form; once the Solemn Form Petition is filed,

10 Temporary Administration will be necessary. 2. Administration Considerations If the estate is contested, a comprehensive inventory should be performed, whether for convenience or as required of a personal representative without powers. If at all possible it should be conducted in the presence of an impartial witness and verified by such person. Alternatively, or additionally, the condition and location of assets should be documented by videotape or photographs. Such documentation may also be helpful for appraisal or sale purposes. Because of the statutory priority of debts, many personal representatives wish to hold all estate assets, including all personal property, until all debts are paid. While this is may be advisable for protection of the personal representative from creditors' claims of improper distribution, all estate property is subject to being brought back into the estate to pay creditors. If in-kind distribution of personal property is anticipated, the personal representative may choose to receive input from the heirs or beneficiaries as to pieces in which they have particular interest. Any correspondence in that regard should note that the personal representative has absolute discretion, and is not bound by the heir's or beneficiary's selection. Because of the personal representative's fiduciary duties are to all heirs and beneficiaries, the appearance of favoritism or bias should be avoided. At the time of distribution, heirs and beneficiaries should be required to sign receipts. Such receipts are often useful when an heir or beneficiary, at the time of Discharge, misrepresents a distribution. See Exhibit E. Melissa Gilbert Moore Ingram Johnson & Steele, LLP BIBLIOGRAPHY Floyd E. Propst, Handbook For Probate Court Judges, (2nd ed. 1998, updated 2000). Institute for Continuing Legal Education in Georgia, "How to" Administer Small Estates (2nd ed. 1999).