Closing the Estate: Accountings

"Final settlement" is the executor's last job.

The last major job of the executor is to close the estate. Once all of the debts owed to creditors by the deceased and the estate have been paid, the executor will know what remains to be distributed to those persons named in the will. At this point, the estate is ready for what is known as final settlement. There are really two parts to this job:

1. preparing an accounting for the probate court, and

2. distributing the assets to those named in the will.

After these tasks have been done, the estate is closed and the executor will be discharged from further duty and further potential liability.

ACCOUNTINGS

Petition

In most states the executor must petition the probate court to file an accounting. There is a standardized legal form for this purpose. At the same time, the executor will file a plan to distribute the estate's remaining property for approval from the probate court, and the executor will also ask the probate court for a discharge.

Notice Requirements

In many states, the petition describing the accounting must be mailed to all interested parties, including those named in the will, other legal heirs, and any unpaid creditors or those with any claims against the estate. This gives interested parties an opportunity to visit the courthouse to examine the accounting for themselves and to raise any questions.

OBSERVATION Typically no objections will be raised at this point. Few people will take the time to visit the probate court to look at the accounting. The most likely objection might come from the clerk of the court regarding some aspect of the forms submitted.

First Accounting

If the estate is open more than one year, in many states a first accounting will be required at the end of the first year. (In some states accounting may be required more frequently.) The probate court requires this accounting in its role of supervisor of the administration of the estate.

Preparing an accounting is a fairly time-consuming process, so if possible the executor should try to wrap up the estate before the first year elapses to avoid having to prepare two accountings to the court. Of course, there may be very good reasons why the estate cannot be closed. Indeed, many estates are open for a number of years because of unpreventable delays. For example, if there are a number of investment properties or a business in the estate, it is very likely that these will not be sold within the first year. More cash will be realized for beneficiaries if such assets are sold in an orderly manner.

Final Accounting

The final accounting is filed with the probate court when the estate is ready for final settlement and final distribution of the property. If the estate is closed within the first 12 months, this will be both the first and final accounting. If all the creditors have been paid, the only claims against the estate will be for income taxes due, the attorney's fee, and the executor's fee and expenses. The rest of the property will be ready for distribution to the individuals named in the will.

The Accounting Document. The accounting is a financial reconciliation of income and disbursements (inflows and outflows) to and from the estate. It is similar to, but more complicated than, a bank reconciliation that is prepared to reconcile a checkbook balance.

The probate court will be auditing (checking) the figures and the information provided by the executor. If all is in order, the judge will sign an order permitting distribution of the remaining assets and discharging the executor. If there are questions, the probate court will ask the executor for explanations before signing the order.

Although an executor can prepare it, most executors will have the estate's attorney or an experienced accountant prepare the accounting. Having a professional prepare the accounting has several advantages and the fee will be an expense of the estate. A professional will know the format that the court clerk will be looking for. Additionally, a professional is far less likely to make errors in preparing the document.

The accounting normally should include the following information:

• time period covered by the accounting

• initial inventory value of each item of property

• all money and property received during the time period

• all disbursements made during the time period (including voucher numbers – see below)

• all money and property currently in possession of the executor

• reconciliation of cash balances

• any other information the court may need to know including: sale of property, advancements, disclaimers, and fee information.

Additionally, the court may require that bank statements (from the estate's bank accounts) and vouchers be attached to the accounting.

Vouchers.Vouchers are the special receipts attached to the checks in the estate's checking account. Some but not all states require the executor to use these special vouchers. There is typically a place on the voucher not only for the name of the payee of the check, but also for his address, the purpose of the disbursement, and a place for a signature of the payee acknowledging receipt of the check.

The probate court will typically require the executor to submit vouchers accounting for every penny of the estate's money along with the accounting.

Taxes. When submitting the accounting, the executor will have to include a statement that all federal and state income taxes have been paid as well as state inheritance taxes and federal estate taxes.