Featured in Image: Elizabeth Estes, Partner & Managing Estate Planning and Probate Attorney; David Michael Cantor, Founding Partner; and Nicholas Boca, Partner & Managing Family Law Attorney

First Things First

When a person passes, somebody is going to need to Administer their Estate.  This includes situations where a husband passes away, and has titled everything to their spouse as “Jointly Owned.”  This designation still will require an “Administration.”  This can include paying off the last illness and burial expenses, valuing assets, distributing assets according to an Estate Plan, and filling a Final Tax Return with the appropriate authorities.  Although some of this may sound simple, the Executor or Personal Representative will need to have knowledge of establishing a new Stepped Up Cost “Basis” in the property in order to achieve more favorable tax treatment, or to preserve the Estate Tax “Coupon”, which can be accomplished through “Portability”, or by a proper allocation of the Generation-Skipping Tax Exemptions.  This is why it’s necessary to have an Attorney involved to assist you should you become an Executor or Personal Representative when Administering an Estate during Probate.

Keep in mind, an Estate Administration is never a fast process.  The minimum resolution timeframe is six months, which is often increased or is a much longer timeline if Final Tax Returns need to be filed.  By using an Attorney at Cantor Law Group, you can help reduce or avoid Estate Tax, Inheritance Tax, Capital Gains Tax, Generation-Skipping Tax, Excise Tax, and/or Income Tax.

The following is a list of Do’s and Don’ts to undertake as an Executor or Personal Representative:

DO’s:

• First, order a copy of 10-15 death certificates from the Funeral Director and secure all Estate Assets by either removing important documents and valuables and placing them in a secured environment (especially if the Decedent lived alone).
• Also make sure to have all mail forwarded to yourself, so bills are not missed.
• Next, compile a complete and accurate list of all Beneficiaries and children, which includes both social security numbers and addresses/contact information.
• Find the most current original Last Will and Testament (LWT). Copies slow the process down. 
• Find all Life Insurance policies, Annuities, and other Insurance-related products.
• Find the Decedent’s Marriage License (if applicable), and Birth Certificate of both the Decedent and any living children.
• Find all Bank Statements and Real Estate Property Deeds.
• If the Decedent was a United States Military Veteran, find all applicable documents.
• Find Tax Returns for the last three (3) to five (5) filing years.
• Prepare a complete Inventory of all Estate Assets, and obtain Appraisals – specifically of Real Estate, cars, mobile homes, and other vehicles, jewelry, art, furniture, etc.
• Make sure to obtain and record a list of Burial Costs and Last Expenses (such as from hospice or hospital stays).
• Compile and maintain records of all expenses, taxes paid and Income received during the appropriate Administration Process.
• Call Cantor Law Group immediately in order to assist you with this process.

DON’Ts:

• Do not contact the Bank to inform them of the Decedent’s passing.  This could result in an automatic “Due-in-Full” clause being triggered on any loans.
• Do not contact Credit Card Companies to inform them Decedent has passed.  This could again immediately cause a demand for payment in full on any outstanding balance.
• Do not notify the Utility Company that the decedent has passed.  This could cause them to immediately cut off all power and water, or request a new deposit. 
• Do not contact any Loan Companies (such as mortgages or car loans) and tell them the Decedent has passed.  Again, this could cause the entire amount to be due immediately, or a car can be Repossessed or a house can be Foreclosed on.
• Do not change any insurance coverages or contact any Creditors or Banks until and unless advised by your Cantor Law Group Attorney.

Required Fiduciary Classes

Whether you do or don’t use an Attorney to be the Executor or Personal Representative, you will still be required to take on-line classes.  These are required per Rule 27.1 of the Arizona Rules of Probate.  You must wait five full days after death in order to apply.  In addition, there is a $324 filing fee.

The general responsibilities of the Executor or Personal Representative will require you to distribute the property of the Decedent pursuant to the Last Will and Testament (LWT), or the Rules of Intestate Succession (if there is no Will).  You will also be required to protect the property of the Decedent for the benefit of the Beneficiaries.

The Statutory Priority in Arizona for being appointed as a Personal Representative are as follows in numerical order:

1. You are the person nominated in the Law Will and Testament (LWT)
2. You are the Surviving Spouse who is also the Beneficiary of the LWT.
3. You are an other Non-Spouse Beneficiary of the LWT.
4. You are the Surviving Spouse of the Decedent, but there is no Will, or you are not listed in the Will.
5. You are another Heir of the Decedent pursuant to law (i.e., children, grandchildren, sibling, etc.)
6. If the Decedent was a United States Military Veteran (or the Spouse of a Veteran) then the Department of Veterans Affairs can act as the Personal Representative.
7. Any Creditor can qualify, if a Probate has not been initiated within 45 days after the Death of Decedent.
8. If all else does not apply, then a Public Fiduciary has priority.

Remember:  The Court website clearly states, “if you’re not sure about this, talk to a lawyer who can help you decide.”  This is a very intensive process that can subject you to legal ramifications (both civilly and criminally) if not handled correctly.  Contact your Cantor Law Group Attorney today to seek counsel.

Statutory Requirements and the Four Stages of Trust Probate Administration After Death

Per Arizona Revised Statute 14-3712 and 14-3703, provide certain requirements that must be met by the Executor or Personal Representative, and if they are not met, this can subject the individual to personal liability for all losses that result from mismanagement or negligence.  The following are a list of some of those statutory requirements:

• ARS 14-3705 requires you to provide certain parties with Notice of your Court Appointment as a Personal Representative or Executor within 30 days of that Appointment.
• ARS 14-3306 requires you to provide a copy of the LWT to all of the Heirs within 30 days after the Will is submitted to the Court for Probate.
• ARS 14-3801 requires Notice to be Published to all Creditors regarding the Probate.
• ARS 14-3706 requires an Initial Accounting and Inventory of all assets to be provided to all Heirs within 90 days of your Appointment by the Court as a Personal Representative or Executor.
• ARS 14-3933 mandates that an Accounting be provided to all Heirs regarding all Receipts and Expenses of the Estate.

The Four Stages of Probate Trust Administration After Death

Stage 1:  Establish Asset Values

The main purpose of establishing an Asset Value is in order to determine what the actual Estate Taxes will be.  As of 2024, a person has a lifetime exemption of $13.99 million dollars which could be left to his Beneficiaries without triggering Estate Taxes. If a person’s Estate is valued at more than $13.99 million dollars, then the highest tax rate could be up to 40% of those remaining assets.  By establishing the valuation, you can then determine how much of the Estate Tax “Coupon” that can be used by the Beneficiaries to avoid Estate Taxes.

One of the main examples of setting a valuation on the date of a person’s death has to do with the primary residence the couple lives in.  If the house was purchased at $100,000 and is now worth $1 million dollars, that means it has increased by $900,000 in value.  If that house was sold before death, taxes would be due as a “Capital Gain” on that $900,000. By calculating the actual valuation of the house upon the first spouse’s death, you can determine the “Stepped Up Cost Basis” of the house.  Now, the Surviving Spouse inherits a $1 million dollar house, but only $900,000 counts against the $13.99 million dollar Estate Tax “Coupon.”  If the Surviving Spouse sells the house the next day, there will be no Capital Gains taxes whatsoever on that $900,000.

Remember: The Probate Trust Administrator must value all of the Decedent’s assets as of the date of death for these IRS purposes and tax determinations.  This is true even if the heir never plans on selling any of those inherited assets.

Stage 2:  Notifying Creditors

• In order for a Probate Trust Administrator to properly notify Creditors in Arizona, they must publish a “Notice to Creditors” for three successive weekends in a largely-distributed newspaper.  This is true for all known and unknown creditors.  If the actual Creditors are “known Creditors,” then the Trust Administrator must also send them a copy of the Notice to Creditors.  Known Creditors are sometimes defined as any Creditor who sent a bill to the Personal Representative (i.e., Executor) or the Successor Trustee at any point in the past.  All of this notification is done in order to ensure that the creditors are paid off before the assets have distributed.  If this is not properly done, the Probate Trust Administrator could personally be on the hook for paying off those Creditors, even though all the money’s been distributed and spent by the heirs.

• Arizona Revised Statute 14-3805 sets up the order and hierarchy of all creditors who are to be paid by the Estate first.  Some common debts that are paid include:  final medical bills; funeral/cremation expenses; and other household contractual expenses which are routine in any normal household.  A Probate Trust Administrator must be knowledgeable in the Community Property Laws and all laws which are in place to protect the Surviving Spouse (i.e., to prevent them from becoming homeless), or a Vulnerable Adult who may still be dependent on the Decedent’s assets.  Arizona law always seeks to keep Surviving Spouses, children, and Vulnerable Adults from becoming destitute.

Stage 3:  Filing of Proper Tax Documents

Before the Final Tax Return can be filed, the Probate Trust Administrator is required to collect assets, value those assets, and pay off all creditors.  This could have been as simple as filling out Life Insurance forms in order to get a Beneficiary paid, or transferring titles on various assets as delineated in the Trust documents.  Once all this has occurred, then the Final Tax Returns can be prepared.

Remember: It is always important to consult with a CPA when having these Final documents prepared.  As a Qualified Trust Administrator will know, there are actually two “tax years” that occur in the year the Grantor of the Trust dies.  The first tax return is from January 1st until the date of their death.  The second tax return will be from the date of death until December 31st of the year they died.  Make sure that you use a highly-skilled Trust Administrator who brings in the services of a CPA when filing the Final Tax Return.

Stage 4:  Distributing the Assets to the Beneficiaries

The Beneficiary Designation in certain legal forms will govern who actually receives the asset.  For example, whoever is designated in a Life Insurance Beneficiary form, or in 401K Retirement Agreement, will be the one entitled to those assets even if it differs from what is stated in a Will and a Trust.  IRA/401K Transfers are very complex, and involve how to properly utilize the Estate Tax Exclusion via the Estate Tax Coupon.  It is imperative that a top-rated Probate Trust Administrator is being used in order to finalize a person’s Estate.

Beware: When a Probate Trust Administrator does not know how to properly use the Tax Exclusion Credit, this is where the most errors occur which gets the Personal Representative (i.e., Executor) and Successor Trustee’s into trouble.  This includes high levels of damages.  It’s also imperative that a Qualified Probate Trust Administrator always informs All Beneficiaries of what assets exist, and how they are to be distributed.  Paperwork, which includes the Will and Trust, should always be given to these Beneficiaries. 

Common Law Duties and Responsibilities of a Personal Representative or Executor

Personal Representatives have a very high standard and Duty of Loyalty which is owed to both the Beneficiary of the Estate, and to the Estate itself.  Some of these duties are as follows:

• Duty to Avoid Conflicts of Interest:  The Personal Representative can never put their interests above that of the Beneficiary, and they may not unfairly profit from the situation.  Although they are allowed to collect a “Reasonable Fee” for services rendered, they cannot profit from information learned, or from transactions conducted.
• Duty of Confidentiality:  The Personal Representative always has a Duty of Loyalty to keep all information regarding the estate Confidential. They cannot reveal this information to anybody, without prior authorization, or without a Court Order.  For example, they cannot write a tell-all book, or reveal information to the media.  This usually arises when they tell one of the Beneficiaries certain information, in which that Beneficiary then uses the information to their advantage over the interests of the other Beneficiaries.
• Duty of Due Diligence:  Personal Representatives must always exercise Reasonable Care and Due Diligence when dealing with the property of the Estate.  In other words, they must act “Reasonably and Prudently” when dealing with the assets.  If they are simply disposing of the assets below the fair market value in order to speed up their duties, or they are selling the assets to their personal friends at a discount, this would be a violation of that Duty.
• Duty to Protect and Preserve the Estate’s Assets:  A Personal Representative must always protect and preserve the assets involved.  This may require hiring security, storing items in a safe, having an insurance agent review and place current fair market coverage on the assets, etc.  There is also a Duty to make property “productive” within a reasonable period of time.  This may mean investing the assets in a very low-risk and secure manner, as opposed to investing the assets in a highly speculative venture.  It also may include securing, maintaining, and improving real estate assets before putting them on the market to sell.  If you have further questions regarding the duties of a Personal Representative, contact us at Cantor Law Group immediately.
• Duty to Act Promptly with Required Affairs:  This includes filing Tax Returns in a timely manner, and other required documents.  It also includes paying Property Taxes on existing properties so they do not land in default.  This Duty to act timely also includes the Duty to Communicate with all of the Beneficiaries with regard to important matter.  Many times problems arise when the Personal Representative is only communicating with one Beneficiary, with the assumption that they are relaying the correct information to the rest of the Beneficiaries.  It is always best for the Personal Representative to involve all Beneficiaries in the decision-making process when it comes to the disposal and maintenance of assets.

Payment for Services as a Personal Representative or Executor

Arizona Revised Statute 14-3719 (et seq.) allows a person to be paid for serving as a Personal Representative or Executor if it is specified in the Last Will and Testament (LWT).  A person can choose to “Renounce” this payment. If they do Renounce the payment they have to file a Written Notice with the Court.  Also, the LWT will normally provide for a specified hourly amount to be paid to the Personal Representative or Executor.

If there is no provision in the LWT for a payment for services to the Personal Representative or Executor, then the person can still apply to be reimbursed at a “Reasonable” rate.  Normally, this is about $50 an hour.  If you do serve as a Personal Representative or Executor, you must track all of the time expended on behalf of the Estate, and submit that time and Request for Reimbursement to the Court.  If the Court approves, then you will be reimbursed out of assets from the Estate.

Finalization and Conclusion of a Probate Trust Administrator’s Duties

Once Probate Trust assets have been fully distributed to the Beneficiaries, and the Successor Trustee is concluding their Administration, they need to file Final Tax Returns.  They also need to send a “Closing Letter” to all of the Beneficiaries detailing how all of the assets will be finally distributed.  If this involves transferring everything to the Surviving Spouse, then the Surviving Spouse must be instructed how to properly title all of the assets. If there is no Surviving Spouse, then there should be directions in the Last Will and Testament (LWT) to the Trustee on how to make the final distribution to Beneficiaries.  Once a Beneficiary is fully informed, and a distribution has been made, then the Qualified Probate Trust Administrator should always get a Receipt of the Distribution, along with the Release of Responsibility and Liability.

Remember, these four (4) things must be done in order to Finalize your Duties as a Personal Representative or Executor in a Probate Matter:

1. A Final detailed Accounting will need to be prepared, provided to the Court, and all Beneficiaries, then ultimately approved by the Court.
2. You will be required to file a Final Plan of Distribution of Assets with the Court.
3. After the Plan of Distribution is approved, a “Report of Final Distribution” will have to be prepared.
4. Lastly, after all assets are distributed, then you will be required to Petition the Court for a Discharge of Personal Representative Status.  This is especially tricky if Real Property is owned in other states, then a Probate Process will have to be initiated within those states.  This is why it is important to hire a Qualified Probate Attorney to handle cases that involve out-of-state Real Property.