Newland's Business Notes

Being a Personal Representative: An Introduction to
Probate  – Part II

Volume 9 Issue 5 -- September/October 2005

In the last newsletter, we talked generally about the probate process and the duties of a Personal Representative (“PR”). (A PR is sometimes also called “executor,” “executrix,” “administrator,” or “administratrix.”)

A PR’s basic duty is to gather, account for, and distribute the assets of the deceased.  If these duties are successfully completed, the PR is officially discharged of his or her duties and the probate estate is ended.  “Ended” means the claims of creditors, heirs, taxing authorities, and others are generally extinguished.

In addition to describing what a PR must do, we want to emphasize things that should not be done.  A good example of a “no-no” is commingling the decedent’s assets (the probate estate) with the assets of the PR.  (More on this practice in a minute.)

A PR need not be a CPA to understand the basic concept of an estate “accounting.” One way of viewing the accounting is to identify what was received and how it was distributed. 

The Estate's Bank Account

It seems obvious that if the assets of the probate estate are commingled with the assets of the PR, it will be much harder to differentiate between the two.  Despite the apparent simplicity of this axiom, often a PR will do just that – commingle assets.  Here is how it often happens.  The decedent and the PR may have had a joint account that was used to pay for a variety of expenses including personal debts of the decedent and the PR.  If this joint account has survivorship provisions, it may pass to the PR in which case he or she owns the account, and it is not a probate asset.

Not being aware that the PR is the outright owner of the joint account, the PR may continue to use the former joint account as a depository for income from the probate estate, such as rent received from properties of the probate estate.

A similar problem arises if the PR pays estate expenses from this former joint account. In effect, the PR is paying estate expenses with the PR’s personal funds.

What the PR should do is open a NEW bank account in the name of the probate estate.  All income and receipts such as rent, sales proceeds, etc., should be placed into this new account.  Similarly, all expenses of the estate should be paid by check (not cash) from this account.  Examples of such probate costs would be probate fees, funeral expenses, taxes, and professional fees.

Inventory and Accounting

The reason for the new bank account and the use of checks written on the account is clear when one examines the simple formula for the final accounting.  The PR must account for the beginning point of the estate — the inventory of assets owned by the decedent on the date of death.  Let’s call the inventory “A.” 

In addition, the PR may have receipts or income from the estate and/or gain from the sale of assets.  These additions we will call “B.”

A and B need to be matched by the outflow.  What is the outflow of an estate?  Broadly speaking, the “outflow” will consist of estate debts and expenses, which we’ll call “C,” and distributions to the heirs, which we’ll call “D.”  When the estate is closed, A + B must equal C + D.

If the PR has “pocketed” assets of the decedent, then A + B will not equal C + D.  The formula aids the Commissioners in supervising the probate process. 

If the PR has commingled assets or expenses, it is still possible to satisfy the formula A+B = C+D, but the process becomes much more complex and expensive, and it makes it quite difficult to satisfy the Commissioners who supervise estates in Virginia (or the probate officials in other states) that the PR has acted correctly and accounted for all receipts and distributions.  

A Clean Slate

Starting with a clean slate (new bank account) is important.  Equally important is the proper use of the new account.  Using the new estate bank account for all estate receipts and expenses is critical, and will supply much of the documentation that the PR needs. 

It is also critical that the PR retain all statements of income, receipts for all estate expenses and receipts for distributions to beneficiaries.  Most likely such documentation will be required when filing the estate accounting.

If PRs use these simple precautions, successfully fulfilling the PR’s job is greatly enhanced.  

If you feel you need assistance with the probate routine, call Newland & Associates for help. 

Copyright 2005

Published by the law firm of Newland & Associates, PLC
9835 Business Way
Manassas, VA 20110
Call us at (703) 330-0000 for a full range of business law and tax-related services.

While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.

Redistribution or other commercial use of the material contained in Newland's Business Notes is expressly prohibited without the written permission of Newland & Associates, PLC.

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