Maryland Trust And Estate Administration
When a person dies, her/his financial affairs need to be settled and the property distributed to the heirs. Although this process may sound straightforward, even easy, it is not. The administration of an estate includes a myriad of details and may appear to be a task of overwhelming complexity. There is no way to escape these details. However, this white paper is designed to take the proverbial 30,000-foot view of the process in order to try to organize the seemingly endless minutia into a digestive whole.
What Is The Difference Between Probate And Non-Probate?
First, it is important that we define the term “estate administration.” This term may refer to the administration of a decedent’s “probate estate” or administration of “non-probate property,” or both. Probate is the process of administering and changing the title of assets held solely in the name of the decedent to the designated recipient of the property under court supervision. Probate assets pass under a decedent’s will, or if the decedent’ did not have a will, by the terms of Maryland intestacy law.
In contrast, non-probate assets are typically not governed by a will, but instead pass in accordance with the governing instrument. Examples of non-probate transfers include transfers by title of a deed (if it contains rights of survivorship), by a beneficiary designation on an account, under the terms of a revocable trust, or by virtue of some other arrangement associated with the asset.
Thus, for this paper, the term “estate administration” includes the process of passing a decedent’s assets to legatees or beneficiaries regardless of whether those assets are probate or non-probate assets.
What Does Being A “Fiduciary” Mean?
Reduced to its simplest elements, the administration of an estate involves gathering a decedent’s assets, paying the decedent’s debts, and distributing the remaining property to the estate’s beneficiaries or legatees.
The individual responsible for this process is called a fiduciary. If the fiduciary is named under a will, the fiduciary is called the personal representative (also commonly known as an executor/executrix in other jurisdictions). If the fiduciary is appointed over a trust, the fiduciary is called a trustee. “Being a fiduciary for a trust or estate is an honor but it comes with serious obligations to those interested in the estate — both beneficiaries and creditors. If you have never administered an estate before, you may be surprised how much responsibility and work is involved,” says Anne Franke, a CPA who assists in estate administration with the Annapolis estates and trusts law firm of Franke, Sessions & Beckett, LLC.
A Fiduciary’s First Steps
The fiduciary’s main obligation in estate administration is to preserve the deceased individual’s assets. Thus, it is important that a decedent’s home and possessions are secured. Mail should be collected and processed. The decedent’s papers should be gathered. Even uninteresting papers that may not seem “relevant” can become useful to the administrative process.
During this process, the fiduciary should keep detailed records so all expenses incurred for the administration of the estate, including all funeral and burial costs, are paid properly out of the estate or reimbursed to the individuals who covered the expenses.
How Is A Personal Representative Appointed In Probate?
The Orphans’ Court appoints the personal representative by granting that individual “letters of administration.” If the decedent died with a will, the document generally names the personal representative and the person named is generally appointed by the court. The person named in the will as personal representative has the highest priority to be appointed as fiduciary of the estate under Maryland law. If there is no will, or the will fails to name a personal representative who can serve, Maryland statutory law sets out the priority of those entitled to be personal representative.
To open a probate estate, the person entitled to be named personal representative files a petition for probate with the Register of Wills in the county where the decedent had her domicile or had most of her property if not domiciled in Maryland at the time of death. Once the letters of administration are issued, the personal representative has authority to stand in the shoes of the decedent in order to wind up the decedent’s affairs. Under some circumstances, a special administrator is appointed instead of a personal representative or a personal representative is changed into a special administrator. This is done because the powers of a special administrator are different than those of a personal representative.
Unlike the appointment of a personal representative in a probate proceeding which requires the oversight of the probate court, a trusteeship is controlled by the terms of a trust and generally done without court involvement. Indeed, one reason revocable trusts are used in lieu of wills is to avoid involvement of the probate process at death. This works only if a person’s assets are either transferred to the revocable trust during the settlor’s life or are held in other non-probate structures (like a joint tenancy deed or pay-on-death account). Although, if something goes wrong, a court can become involved if a beneficiary or the trustee petitions for relief.
Different Oversight For Probate And Trust Estate Administration
Unlike some other jurisdictions, the Maryland probate court (the Orphans’ Court) does not have jurisdiction over non-probate arrangements, including trusts. If a question arises about a person representative’s conduct or how distributions should be handled, those issues go before the Orphans’ Court. If a question arises concerning non-probate arrangements, those issues are resolved in the Circuit Court not the Orphans’ Court. “The separate procedures governing probate and non-probate property transmittal at death can cause confusion. This confusion is magnified by the ambiguous messaging by some promoters of revocable trusts which implies that you automatically avoid estate taxes by avoiding probate. Although a revocable trust is very useful estate planning tool and can provide clients with great benefits, it does not automatically let you side-step estate or inheritance taxes. For inheritance and estate tax purposes, property transfers from a will or a revocable trust are treated the same,” says David Sessions, a principal of the Maryland estates and trust law firm of Franke, Sessions & Beckett, LLC.
Marshalling Assets And Paying The Fiduciary
Once the personal representative has been appointed or a trusteeship is filled, the fiduciary can begin to marshal assets. This is a process of learning what assets are included in the fiduciary estate and retitling those assets into the name of the fiduciary estate. For example, a personal representative may need to retitle a brokerage account from the name of the decedent to the estate.
For the probate estate, the Register of Wills office or the Orphans’ Court monitors this process by requiring the personal representative to file an inventory of assets and accountings of estate financial activity. The personal representative is charged with establishing the value of all assets and with paying all lawful debts. Additionally, the personal representative must file information about assets passing outside of the formal probate estate (for example, property transferring by joint tenants or property titled to the revocable trust). One purpose of this reporting is to insure inheritance taxes are properly collected.
The trustee for a revocable trust is responsible for the property under his or her control. Even though the formal oversight performed by the Register of Will or Orphans’ Court does not apply to a trust, the trustee is still required to account for the value of the property and the trust’s financial activity. In this vein, the Maryland Trust Act governs the duties of the trustee and the rights of the trust beneficiaries.
A fiduciary generally has a duty to satisfy the debts enforceable against a fiduciary estate. Under the probate system, creditors of the decedent have 6 months from the decedent’s date of death to file a claim against the probate estate. Secured creditors, however, may rely on the mortgage or other security instrument for payment. A secured creditor who fails to file a claim against the probate estate will forfeit their right to collect from the general assets of the estate if the security is insufficient to cover the debt. In the first years after the financial crash of 2008, many secured creditors discovered that their security interest was insufficient to cover the debt and they failed to file a timely claim against an estate. Thus, they incurred a loss on the loan. It is now common practice for secured creditors to file a protective claim.
The process of filing a claim against a revocable trust is more complex then filing a claim against a probate estate. The Maryland Trust Act states that if a regular probate estate is filed, then a creditor has 6 months to file a claim against the probate estate, and the Maryland Trust Act makes clear that the assets in the revocable trust may be reached by probate creditors to satisfy unpaid claims. If no regular estate is opened, however, a trustee may shorten the statute of limitations by running a notice in the appropriate newspaper. Otherwise the Maryland Trust Act suggests that a longer statute of limitations applies.
Tax Obligations In Maryland
A fiduciary estate is generally subject to several different taxes, including the Maryland inheritance tax, the Maryland estate tax, the federal estate tax and the Maryland and federal income taxes. A governing document generally dictates how these taxes are paid.
If the estate is large enough to be taxable for federal tax purposes, the personal representative files a federal tax return and makes arrangements for the payment of whatever tax is due. This tax return is due nine months from the date of death. This would also apply to the federal estate tax.
If the estate assets earn interest or other income during the period of administration, a federal income tax return and a Maryland income tax return for the fiduciary estate is likely required. The personal representative is also responsible to file the decedent’s last personal income tax return.
A Maryland Estate Administration Attorney Will Help Guide You Through the Process
This is a brief overview of the Maryland estate administration process. It is not meant to be comprehensive, but a simple roadmap as to what can be expected in the process. Because the administration of an estate can be so complex and detail oriented, you will likely have specific questions and concerns.
For over 35 years, the law firm of Franke, Sessions & Beckett, LLC has concentrated on the law of estates and trusts – including helping hundreds of clients with estate and trust administration. Often this means winding up a decedent’s financial affairs and implementing the plan contained in the will or trust. Sometimes a decedent dies without an estate plan in place so the estate needs to be settled in accordance with the intestacy rules set out by state law. We prepare estate and trust federal and Maryland tax returns in-house so we can offer seamless administration services from beginning to end. Our Maryland estate administration attorneys and staff have the experience, training and knowledge to guide clients through the process to ensure that Maryland estates and trusts are administered properly. In order to schedule a consultation, call 410-263-4876 to get in touch with our Annapolis office.