In Part 2 of our series of Probate Process Blog posts we discussed (1) preparing and filing the Petition for Probate, (2) gathering assets and information, and (3) preparing an Inventory and Appraisal. In this Blog post, we will discuss (1) selling assets during the probate administration, (2) preparing the Final Report and Account, and (3) the distribution of assets to the beneficiaries.
Selling Assets During the Probate Administration
Many people are under the misunderstanding that all of the estate’s assets need to be sold during the probate administration and only cash can be distributed to the beneficiaries. If a beneficiary desires to receives an in kind distribution rather than cash, and if there is sufficient cash in the estate to pay taxes, creditors and administrative expenses, the executor or administrator may distribute the assets, rather than cash, from the estate. California Probate Code Section 10000 states that any interested person can petition the court for an order directing the personal representative to sell estate assets where: (1) the sale is necessary to pay debts, devises, family allowance, administrative expenses, or taxes; (2) where the sale is to the advantage of the estate and in the best interest of the beneficiaries, and (3) where the Will directs that the property be sold.
The sale of real estate requires the publication of a Notice of Sale of Real Property be published and a hearing confirming the sale. If the judge confirms the sale of the property at the hearing, he will sign the Order Confirming the Sale. If the personal representative has been granted Full Authority under the Independent Administration of Estates Act, then he or she need not go through this process, but he or she must give each beneficiary of the estate a Notice of Proposed Action prior to selling the real estate. Most real estate agents are not familiar with the process of selling real estate subject to a probate administration, so it is very important that the personal representative hire a real estate agent or broker who has experience with the probate real estate sales process. This will minimize mistakes as well as needless delays due to failure to comply with the regulations pertaining to sales of real estate through probate.
If stocks, bonds, mutual funds, and other securities are to be sold on an established stock or bond exchange, no special permission of the court is required. If the sale is to occur privately or outside of an established stock and bond exchange, the approval of the probate judge will need to be obtained. The sale proceeds from the sale of these securities should be placed in the estate bank account after sale.
The sale of tangible personal property can be through private sale, a garage sale or an estate sale. If personal property is being given to or sold at a discount to a beneficiary of the estate, it would be wise to obtain the consent of the beneficiaries of the estate (unless the transaction is directed under the Will). If personal property is being donated to charity or otherwise abandoned, it would be wise to give each beneficiary a Notice of Proposed Action prior to doing so.
Preparing a Final Report and Appraisal
Once the Inventory and Appraisal has been filed, the creditor claim period has expired, all claims that were allowed have been paid and the time period for suit has expired for those creditor claims has passed, a Final Report can now be prepared and filed by the executor or administrator. All tax returns also need to have been filed or a reserve established for the payment of taxes for returns that have yet to be filed must be established. If he or she has not done so previously, the executor or administrator must give notice of the decedent’s death of the Franchise Tax Board and to the Victim’s Compensation and Government Claims Board. The notice to the FTB is for the purpose of determining whether there are any unpaid taxes. The Notice to the Victim’s Compensation and Government Claims Board is to determine whether any beneficiary who has been convicted of a crime owes restitution to a victim of his or her crime. if so, these victims must be repaid from the beneficiary’s share of the estate.
The Final Report will inform the court and the beneficiaries of all the actions of the personal representative during the administration process, tell the court the estate is in a position to be closed and set forth how the assets of the estate will be distributed. Any beneficiary of the estate may object to the Report and often the court finds deficiencies in that Report that need to be addressed prior to court approving the Final Report.
Unless the beneficiaries of the estate have waived the right to an accounting, the Final Report must also include an accounting. The accounting would start with the beginning assets as shown in the Inventory and Appraisal, list and categorize all income received by the estate, provide information on any gains or losses on sale of assets during the administration process, itemize all expenses and distributions made the administration of the estate, and provide a list of the assets remaining to be distributed among the beneficiaries. As with the Final Report, the beneficiaries will have the opportunity to object to anything in the accounting. The court examiners or the judge may also have questions that must be addressed by the personal representative. The accounting must be presented in a manner prescribed by State law and local rules. Many accountants are unfamiliar with how an accounting for a probate estate is to be prepared, so if the administrator or executor is seeking assistance with the preparation of a probate accounting, he or she should seek the assistance of a probate law firm or accountant who has experience in preparing accountings for the probate court.
Once the Final Report and Appraisal have been approved by the judge and an Order issued, the personal representative should establish any reserves that are ordered by the court and then distribute the remaining assets in accordance with the Order. The assets to distribute may just be cash or it could include property such as stocks or real estate. The executor or administrator will need to obtain receipts from the beneficiaries for the amounts distributed and file those with the court so that the probate administration can be closed and the bond exonerated.
Unless the assets sold at a profit from the value shown on the Inventory and Appraisal, most assets received by the beneficiary of a probate estate will be income tax free and estate tax free (unless the estate is extremely large). The person who prepares the final income tax return for the estate should provide each beneficiary with what is known as a K-1 report. This is very similar to a 1099 or W-2 form and it should be provided to the beneficiary’s accountant to report the income that the beneficiary receives, if any.
If real property is being distributed from the estate of a parent to a child or children of the parent and it is desired that the parent’s property tax rate, it is very important that the proper forms be filed on a timely basis with the Assessor’s Office in order. Failure to file the proper Parent-Child Exclusion forms on a timely basis may result in the property being reassessed, with the subsequent increase in property taxes. This is a very complicated area of the law and it is easy to make a mistake that would cause an unwanted increase in property taxes. Again, consulting with a professional who is knowledgeable about the reassessment process and the Parent-Child exclusion is highly recommended in order to avoid unwanted results.
Riverside Probate Attorneys Can Assist You
If you need assistance with a probate proceeding in Riverside County or San Bernardino County, call us at 951-888-1460 to schedule an appointment with one of our Probate Lawyers or visit our website for more information. If you are a beneficiary of an estate being administered in the Riverside Probate Court or San Bernardino Probate Court and do not believe it is being properly administered, give our office a call to schedule a consultation with one of our Probate Attorneys.