Serving As A Personal Representative

By: Virginia A. Dwyer, Esq.

Grannis & Hauge, P.A.

651-797-7423

[email protected]

This description is intended as a simple reference for clients serving in the role of a Personal Representative. It is not intended to be an exhaustive description of all rights and responsibilities of the Personal Representative, but answers to the most frequently asked questions about the role.

The Role Of The Personal Representative (PR)

An estate is a legal entity. Just as a corporation needs officers to act on its behalf, an estate needs a natural person who is authorized to sell its property, pay its bills and distribute assets. In Minnesota, that person is the Personal Representative (PR) of the estate. Under earlier laws, that person was known as the executor or executrix of the estate. A Will names the person(s) who the decedent has selected as his/her PR. If there is no Will, or if the person(s) named in the Will cannot or will not serve, Minnesota's statutes include a prioritized list of the people who can serve (a spouse has top priority, then children, etc.).

A PR is a fiduciary. Minnesota law states that a PR "shall observe the standards of care in dealing with the estate assets that would be observed by a prudent person dealing with the property of another, and if the personal representative has special skills or is named personal representative on a basis of representation of special skills or expertise, the personal representative is under a duty to use those skills. A personal representative is under a duty to settle and distribute the estate of the decedent in accordance with the terms of any probated and effective will and applicable law, and as expeditiously and efficiently as is consistent with the best interests of the estate. The personal representative shall use the authority conferred by applicable law, the terms of the will, if any, and any order in proceedings to which the personal representative is party for the best interests of successors to the estate." Minn. Stat. Ann. § 524.3-703.

The Probate Process

The probate process has three essential phases: opening, administering and closing.

Opening

Probate proceedings can either be informal or formal; most are informal. In Dakota County, the PR's experience will not be much different in either type of case, but in some other counties a formal proceeding requires court appearances. An informal probate begins with an Application to the Court and a formal proceeding begins with a Petition to the Court. Either the Application or Petition sets forth information the Court needs about:

the decedent (name, dates and places of birth and death, social security number;
the decedent's spouse;
the will if one exists;
the applicant (usually the PR);
the decedent's assets and debts, to the extent known; and
"interested persons": a legal term for spouse, children, heirs, devisees (those named in the will) and creditors.

The first filing with the probate court includes the application or petition, the will, if there is one, and an oath by the proposed PR, promising to faithfully administer the estate.

Once the application or petition is approved, notices are sent to the interested persons and published in the newspaper. A special notice is required to be sent to the Commissioner of Human Services, so that if either the decedent or the decedent's spouse received medical assistance benefits, the Commissioner can assert a claim.

When the notices are sent and affidavits of service filed, the Court issues "letters" to the PR. The letters are the official document evidencing the PR's appointment. The opening is now complete. Our office will issue a bill at this point. The bill will include court filing fees, publication costs and the costs for obtaining certified copies of the letters.

Opening the probate proceeding typically takes about six weeks from the date we meet to begin the probate process. Sometimes there is a need for quicker action. If that is the case, please let us know as soon as possible.

Administration

The PR's obligations in administering the estate are essentially to secure and gather up assets, pay valid debts or claims, file tax returns and pay taxes and either distribute assets to the heirs or devisees, or to sell assets and distribute the proceeds. The following are typical administrative tasks for the PR:

Opening a bank account for the estate. The PR will not be able to use the decedent's bank accounts (unless they were co-owned with the PR) to collect assets and pay bills. An estate checking account is usually opened. The bank or credit union will require a copy of the PR's letters and a federal tax id number for the estate. We will assist you in obtaining the tax id number if you wish.
Collecting bank accounts, insurance policies, retirement accounts. Some of these assets will be non-probate assets, i.e., they pass to another person outside of the probate process. If the assets are non-probate, it is not the responsibility of the PR to collect them, allow the same person serving as PR may be a beneficiary of a non-probate asset. In some instances, particularly collection of retirement accounts, there are tax consequences which should be reviewed with financial or legal professionals before collection.
Paying the decedent's debts. Some creditors file claims against the estate. If a claim is filed, we will assist in requesting a Satisfaction of Claim when the bill is paid.
Selling real estate. At least 30 days must pass after the PR's appointment before the PR can sell real estate. The PR should be careful to sign all sale documents in the name of the estate, e.g., Estate of John Smith, by Mary Smith, Personal Representative.
Distributing real estate. In some cases, the will specifies that real estate should be distributed to one or more devisees. The PR will issue a "deed of distribution" for those bequests.
Distribute or sell the decedent's personal property. The decedent may have specified in the will or in a separate writing who should receive some of the items of personal property. In most cases, however, there are additional items which must be divided up among family members, sold or donated. Disputes over the distribution of personal property are not uncommon. We will discuss with you any requirements of the will and how to develop a fair plan for distribution.
Filing the Inventory with the Court. The Inventory is required to be filed nine months after the decedent's death or six months after the PR's appointment, whichever is later. In informal cases, courts are lenient if the Inventory is not filed within that time frame, but the PR should be mindful of the deadline. The Inventory lists all the decedent's assets, the value of each asset on the date of decedent's death, and any mortgages or other liens against the property. We will assist in preparation of the Inventory.

Taxes

An important administrative task is filing tax returns and paying taxes. The PR should be aware of three types of tax returns for which the PR may be responsible:

The final income tax returns. If the decedent had taxable income in the year of death, the PR will file final tax returns and either pay the taxes due or collect the refund(s). It is helpful to locate the decedent's prior year's tax returns since there may be items which carry over to the final return (e.g., loss carry-forward).
Fiduciary returns. As indicated above, an estate is a legal entity. If it has taxable income (e.g., interest, dividends, capital gains), it must pay taxes. The tax year for an estate is not a calendar year. It dates from the month in which the decedent died. For example, if the decedent died on June 15, the tax year for the estate ends on May 31 of the following year, although the PR can file for a shorter tax year.
Estate taxes. Larger estates (exceeding the Minnesota estate tax credit) can owe estate taxes. We will discuss this issue at our first meeting if it appears that the estate will owe estate taxes. The estate tax return is due nine months from the date of death.

It is important for the PR to decide and let us know who (if anyone) will assist in the preparation and filing of tax returns. The estate tax return should be prepared by a professional experienced in filing such returns. The decedent's final returns can usually be prepared by the same preparer whom the decedent used, if they are willing. Not all preparers will file fiduciary returns.

Our office will assist in preparation of tax returns if the PR requests. Tax season is very busy, however, so please make the request well before any returns are due.

Creditors' Claims

During the administrative phase of a probate proceeding, creditors have four months after appointment of the PR to submit claims. After that, except in unusual circumstances, the claims are barred. This limitation is one of the benefits to a probate process. The PR can either allow and pay the claims submitted or, if the PR does not think the claim is valid, deny all or part of a claim. If the PR denies all or part of the claim, the creditor can ask the Court to determine whether it should be allowed.

Distributions

Distribution of the estate's money or property is made prior to or contemporaneous with closing the estate. Distributions can be full or partial. Once the PR is confident that the debts and taxes have been paid, it is possible to make interim distributions. Our office will generally mail out receipts for each distribution made and ask that the receipt be signed and returned. We are happy to mail out checks with the receipts.

Closing

Once the creditors' claims period has expired (four months after the PR is appointed), and the PR has completed administrative tasks, the probate can be closed. In all but the most simple probate proceedings, it is either required or highly recommended that the PR prepare and file a Final Account. The Final Account shows the assets of the estate at their Inventory values, lists all expenditures out of and income or refunds into the estate, and shows the amount available for distribution. It needs to balance. We will assist in the preparation of the Final Account. In order to ensure accuracy the PR should do the following:

Only use the estate checking account for expenditures. Keep a thorough and well-notated check register and/or copies of each check written and note the purpose of the expenditure.
Provide copies of all banking and investment account statements, all tax returns and supporting documentation (e.g., 1099's).
If real estate is sold, provide a copy of the settlement statement.
Track all funds coming into the estate, e.g., refunds, interest, dividends, advances.

It is not always necessary to file the Final Account with the Court but in most cases we recommend doing so. In a formal proceeding, the PR may request the Court's approval of the Final Account at any time after the creditors' claims period expires. There may also be a Proposal for Distribution in a formal proceeding that is subject to Court approval.

Receipts for all distributions should be collected. It is not always necessary that they be filed with the Court but we frequently do so, to ensure a public record that distributions were correctly made and acknowledged.

Finally, the PR may "close" the estate. In an informal proceeding, the PR files a "Statement to Close" which is a statement of the PR that all tasks are completed, claims paid, taxes filed and paid, accounting completed and assets distributed appropriately. In a formal proceeding, the PR will apply to the Court to be discharged. The PR continues to have authority to act as PR for one year after filing the Statement to Close or after the Order Discharging the PR. In some cases, after closing the estate, the PR will become aware of another asset, e.g., a bank account or insurance policy, that was not probated. If the discovery is within one year after the PR was discharged or closed the estate, the PR still has authority to collect the asset and still has the responsibility to distribute it properly.

Compensation For The PR

Under Minnesota law, a personal representative is entitled to "reasonable compensation for services." In determining what is reasonable compensation, the court considers: (1) the time and labor required;(2) the complexity and novelty of problems involved; and (3) the extent of the responsibilities assumed and the results obtained. We will be happy to provide guidance about what amount is reasonable. The PR is also entitled to reimbursement of expenses (e.g., mileage, parking, stamps, copy costs) and is entitled to engage professionals to assist (attorneys, accountants, real estate agents, etc.). Many PRs, however, waive compensation for their time.

Disputes

The vast majority of probate proceedings take place with little fanfare or controversy. It is not uncommon, however, for a family member or other interested person to be upset about or suspicious of a PR's actions or decisions. If you anticipate any difficulties or disputes, please let us know as soon as possible. In some cases, we will recommend or a Court will require that the probate be conducted as a formal proceeding or a supervised proceeding. Such a proceeding can be somewhat more complicated but provides supervision and approval for the PR's actions. Other measures which can assist in avoiding or resolving disputes are:

Developing neutral processes for distribution of the personal property (e.g., drawing straws, having all property valued and allowing devisees to "buy" their preferred items out of their share of the property);
Detailed record-keeping (retaining receipts, invoices, records for time);
Avoiding surprises (notify devisees if there will be an estate sale, a sale of the homestead, etc.);
Establish and comply with reasonable expectations for timelines for administration and explain any delays. A PR is not obligated to seek approval for devisees or account for all the PR's decisions, but a general timeline can be useful, e.g., "We plan to clean out the house by the end of the month, put it up for sale by October 15 ^th and the realtor has warned us that it could take 6-12 months to sell in its present condition."

Questions?

Please contact me with questions on the above or for questions not answered by this information.

Serving As A Personal Representative