Your brother wants to stop by next week and pick up Dad’s workshop tools, and your sister could really use an advance on her inheritance to pay her son’s college tuition bill. It sounds reasonable, but don’t make asset distribution too early, or in the wrong order. That mistake may cost you, personally.
Before any asset distribution, an estate executor must make sure that the estate is solvent – meaning it actually has enough assets to pay debts, and then some left to distribute. Then go through the legal probate process according to your state.
During this process, there is a method for sharing items with all beneficiaries. Here is how to properly distribute estate assets, including household items, real estate, and cash.
Mementos, Furniture and Other Tangible Assets
Tangible assets are things you can physically touch that don’t have a title attached – furniture, antiques and jewelry, for example. While state laws vary, in general you can probably start distributing smaller specific bequests after an inventory and appraisal are completed. These smaller bequests, often sentimental items, may be made once there’s confirmation of sufficient cash in the rest of the estate to cover any outstanding taxes and bills.These smaller asset distributions shouldn’t have a material impact on zeroing out a decedent’s accounts. For example, if Grandma bestowed her good china on your cousin Betsy, passing that along to Betsy before probate settles (after you know the estate is solvent) will probably be fine. On the other hand, if Uncle Bob’s Will directed that a valuable painting go to your sister, it’s probably better to wait a while longer just to make sure there are enough other assets to cover all the outstanding liabilities. If there are insufficient assets, the value of the sold painting could be a way to cover outstanding debts.
Houses and Other Real Estate
In most cases, asset distribution of real estate – a house, vacation property or land – depends on how the property is titled, although laws vary by state.
If a deed is only in the name of the deceased, that property usually transfers to either the beneficiaries or the heirs, depending on state law. If the Will directs the property be sold, the Executor will sell the house and distribute the proceeds to the beneficiaries.
If the Will identifies a specific person to inherit the property, that asset will usually pass to the heir. However, if there are outstanding debts and bequests need to be satisfied first, those debts can force liquidation of the property.
Stocks, Bonds and Cash
Executors are required to handle cash and other liquid assets through a separate estate bank account. In order to set that up, you’ll need the death certificate, letters of testamentary from the court, and an EIN from the IRS. All of the decedent’s liquid or negotiable assets should be transferred into this account.
The cash in the estate bank account may be used to pay any estate-specific bills, such as valid debts that the decedent owned, or court filing fees. As the executor, you’ll also be able to sell any of the stocks, bonds death or other securities to raise any cash necessary to manage the estate while it’s in probate.
When it comes to distributing liquid assets after probate settles, ask the beneficiaries how they would like to receive their share. Some might prefer cash, while others might want the stock. As long as asset distribution is equitable based on the current market value of the stocks and bonds, it doesn’t matter how these are divvied up.
So, what about your brother’s workshop tools and your sister’s cash advance? As long as your workshop isn’t exceptionally valuable (as in, a professional-grade specialty shop), your brother can take the tools once you’ve determined that the estate is solvent. Your sister, however, will have to wait.
Not only is that the law, but it protects you against personal risk. If you distribute assets before paying off all estate debts, and the estate were to come up short after taxes and creditors are paid off, the executor alone can be on the hook for those debts.
WayForth is a downsizing, senior move management, and estate clean-out company. We offer our probate resources as support for families settling an estate, but we do not offer legal services.