Estate Planning
Settling an Estate: A Step-by-Step Guide
Stephanie Booth
Being appointed executor of a will is an important — and, let’s face it, somewhat daunting — responsibility. There’s a lot of complexity to settling an estate. But breaking it down into steps, like we’ve done below, can help.
Takeaways
After reading this guide, you’ll know:
The steps to settling an estate
When it’s time to call in a legal professional to help
How to proceed without a will
Make life easier with Trustworthy
How long does an executor have to settle an estate?
If you’ve been chosen as executor, it’s up to you to carry out the wishes of the person who’s passed, according to what’s specified in their last will and testament. A large part of settling an estate is making sure all assets are accounted for, then distributing them to the designated beneficiaries.
How long this settlement process takes really depends on the size of the estate and the types of assets involved. A simple estate with just a house and a few bank accounts might take 6-8 months to settle. A more complex estate with multiple types of assets could take several years to finalize.
For that reason, it’s wise to start the wheels of the settlement process turning immediately. Here’s what you’ll need to do.
1. Gather the information you’ll need to settle the estate.
Find the will.
Start by contacting the deceased person’s lawyer, if they hired one. Their attorney will be able to get you a copy of the will.
No attorney? You’ll need to do some detective work. If you have access, check the deceased person’s computer and email, as well as the rest of their home, office, and security deposit box.
You can also check the U.S. Will Registry, where wills can be registered for free.
Get a copy of the death certificate.
Ask for multiple copies from the funeral home. You’ll need to show this document at various points during the settlement process — for instance, to gain access to bank accounts, pay taxes, and notify the Social Security Administration.
2. Determine whether you need help from attorneys.
It’s a misconception that you have to hire a lawyer when you’re settling an estate. An attorney isn’t a requirement, but in many cases, legal know-how and experience can be helpful.
Some reasons that you might consider hiring an attorney:
You need to go to probate court (which oversees the property and debt of a person who’s passed on).
The estate includes a complex asset (like a business).
The will is being contested or family members don’t see eye to eye.
The estate may not have enough money to pay off debts.
You’re not sure that you understand your state's laws and procedures. (It’s not just you — many can be quite complicated.)
You anticipate the estate will need to pay federal or state taxes.
In any of the cases above, professional help could save you both time and money.
3. File the will with probate court.
A petition for probate kicks off the settlement process.
Even if you were already designated as executor in the will, you’ll need to fill out this form. Once it’s approved by the court, you’ll have the legal authority (aka, “Letter of Administration”) to manage the affairs of the estate.
4. Notify agencies and businesses.
When someone dies, businesses and agencies aren’t automatically notified. That will be up to you. Plan to contact:
Banks
Credit card companies
U.S. Post Office
Utility companies
Social Security Administration
Department of Veteran Affairs
Medicare or any other health insurer
Any other businesses with whom the person had financial dealings
You’ll need one safe place to store documentation of the communication you have with each of these entities, especially in case any issues later arise. (Trustworthy can help with this step.)
Depending on the state you’re in and if you’re going through probate, you may also be required to publish a notice of death, typically in a local newspaper. This allows creditors whom you aren’t aware of to contact you and make a claim.
5. Communicate with beneficiaries.
Reach out to each beneficiary to let them know that you take your role seriously and the steps you’ll take to eventually distribute the assets (especially theirs) and settle the estate. (Don’t forget to contact any businesses or charitable organizations that are named as beneficiaries, too.) You may also want to include a copy of the will.
Not sure how to phrase all this? You can find a helpful sample letter to beneficiaries at Executor.org.
6. Take inventory and get assets appraised.
Next, you’ll need to take stock of all the deceased’s assets. Carefully taking inventory allows you to determine if any estate taxes need to be paid. It also allows you to determine if the estate is solvent — ie, you have more assets than debt.
A formal inventory will need to be filed with probate court, but even if you don’t go through probate, you’ll find it helpful to keep a detailed spreadsheet. Trustworthy can help you put together the inventory and store it safely once it is finished.
When you make note of assets:
Be (very) detailed.
For instance, include policy numbers of life insurance policies, the number of shares of each stock, VIN numbers of cars, and the serial number on U.S. savings bonds.
Include "intangible assets."
A copyright on a book, a patent, a signed contract. . .these are all considered assets, so include them in your inventory.
Get professional appraisals.
Unless you’re an expert on all things, it will be hard to accurately guess how much a painting, antique cookie jar, or ‘67 Corvette that’s been a home to raccoons for twenty years is worth. A professional appraiser can give you a concrete answer.
If you’ve hired a lawyer, they may be able to recommend an appraiser. You can also contact a professional organization, like the American Society of Appraisers.
7. Set up a bank account.
A key part of settling an estate is opening up a new bank account to hold the financial assets of the deceased. You’ll use this account to pay bills (like a mortgage), take care of fees associated with the burial, pay off debts, and collect any money owed.
A basic checking account is often appropriate, although some banks offer special estate accounts. If the estate is large and/or complex, you may even need to open more than one account.
A quick note: Before proceeding to the bank, you must apply for a Tax ID or Employer Identification Number (EIN). (Apply online at the IRS to get one immediately.) Bring this documentation with you to the bank, along with:
A copy of the death certificate
Your personal identification
Letter of Administration
8. Collect money and pay off debts.
Once you collect insurance benefits, final wages, and the like, you’ll deposit them into the estate bank account.
You’re also responsible for paying off any unpaid bills or debts of the person who passed. (And debt collectors are allowed to contact you about them.) It’s important to stay on top of these as best you can, so you don’t damage or lose assets. Car payments, electric bills, mortgage payments — these should all be paid in a timely manner.
If you find that the estate doesn’t have enough cash to pay off its debts, you may need to sell some assets. Here’s where a lawyer’s help can be invaluable. As executor, you have a responsibility to be fair to all beneficiaries. If it’s not clear what you can fairly liquidate or you feel the beneficiaries may not agree, call in an impartial attorney.
In the case of an insolvent estate — ie, one that has more debt than assets — state law will decide and prioritize which creditors are paid first.
9. Pay taxes.
The IRS separates the tax returns from a deceased person and their estate, so you’ll have to figure out the different filing requirements of each.
Income tax for the deceased.
You’ll need to file a tax return (Form 1040 or 1040-SR) for the year of death, as well as any previous years in which a tax return was not filed.
Income tax for the estate.
You’re required to file an income tax return (Form 1041) if the assets of the estate exceed $600 annually. If the estate includes a business, that will require its own EIN.
Estate tax returns.
In some cases, you’ll need to file a tax return (Form 706) when assets are transferred to beneficiaries. You can find out more about estate taxes at the IRS website.
10. Distribute assets.
Once all debts and taxes have been paid, you’re ready to distribute assets.
(This timing is important by the way. If you dole out the inheritance first, you may find yourself liable for any leftover estate expenses.)
To avoid issues later on, always ask the beneficiary to sign and date a receipt for each item of their inheritance. You could also include a line about returning payments if they find out there’s been an error.
Some types of assets also come with unique distribution guidelines. For instance:
In some states, a property title will automatically pass to beneficiaries without any formal steps on your part. In other parts of the U.S., you may need to petition the court for distribution.
Stocks and bonds may need to be re-registered in a beneficiary’s name.
A specific dollar amount mentioned in a will (“I leave my great-granddaughter Janie $19.99!”) will need to be written as a check from the estate account you opened.
11. Close the estate.
Once all the above steps have been completed, you’re almost done settling the estate! Lastly, you’ll file a final accounting with the probate court (and make sure each beneficiary has a copy, as well.) This should include:
Income/assets received
Losses to the estate
Amounts paid out to creditors
A detailed accounting of how the inheritance was distributed to the beneficiaries
Some states require a petition to be filed in court before the estate is officially closed. Regardless, the American Bar Association recommends that you still ask each beneficiary to sign an attorney-prepared document that acknowledges their acceptance of the assets (if you haven’t already) and approval of the role you’ve played as executor. It’s a small formality that can protect you from later disagreements. (And Trustworthy gives you a simplified way to keep track of these important papers.)
Common Questions
How do I settle an estate without a will?
Technically, if there’s no will, there’s no executor. But there are still procedures that will have to be followed. The state’s probate court will appoint an administrator or personal representative — who has all the same responsibilities as an executor, just with a different title.
To nominate yourself to be executor, head to the county court and file a petition to begin probate. (Here’s another instance where you’ll need a copy of the death certificate and where working with an attorney could be a wise investment.)
Being an executor of a will isn’t a task to take lightly. In case you haven’t reached this conclusion yourself — settling an estate can be time-consuming. Luckily, Trustworthy has tools to help you streamline the process, protect (and organize) crucial documents, and give you peace of mind during the settlement process.