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