When a person passes away, he/she may leave property or an estate to heirs and beneficiaries. The transfer of title to property or assets of the deceased to his/her beneficiaries happens through an estate executor, commonly known as a personal representative. It is very important to understand the duty of a personal representative and the challenges associated with the role.
Who is a Personal Representative (executor)?
A personal representative is someone who undertakes the responsibility of distributing the assets of an estate among the beneficiaries and settling any outstanding debts the deceased may have had. The personal representative (often referred to as “PR”) is often identified in the deceased’s will; if the deceased passed without a will (the legal term is “intestate”), state law provides a process for naming a personal representative (typically one of the beneficiaries of the estate) who will serve in that capacity to handle the estate and its affairs.
In the event that no personal representative is named in the will and there are a number of beneficiaries that could potentially fill that role, state law provides a process by which a personal representative may be chosen from the available candidates. Such a scenario could arise where a widowed man dies without a will, leaving his property to his children who have equal priority for the role of personal representative. The appointment of a PR can be decided by a judge or by the unanimous consent of the other candidates.
In legal parlance, probate is the process of transfer of a decedent’s estate to the devisee. There are two types of estates; testate estates and intestate estates. Testate estates are associated with a will, whereas intestate estates are not associated with a will. There are three forms of probate in Colorado.
Probate for small estates
This probate applies specifically for a decedent who leaves an estate with a value of $70,000 (as of 2020) or less, and does not contain any real property (such as a home or plot of land). This type of estate administration can be completed without a probate proceeding in court with the help of an affidavit.
Informal probate is available for estates with or without a will. In the informal probate process, the personal representative is undisputed because he is either named in the will or chosen by the judge in court. For this reason, informal probate is also called uncontested probate.
Formal probate, as the name implies, is a process that is handled in court according to relevant state rules and statutes. Formal probate is often used when a will is contested as being invalid or unclear. For example, if it is alleged that a will was the result of undue influence, or that the will was made at a time when the deceased was incapacitated (either mentally or physically), a challenge to the validity of the will is presented to the court. To resolve this, a judge will make a determination as to the will’s validity and appoint a personal representative to oversee the administration of the estate, to include the distribution of assets to beneficiaries and the sale or transfer of real property.
What Are the Duties of a Personal Representative in Colorado?
As a personal representative of an estate in Colorado, one must act in the best interests of the estate and treat all beneficiaries impartially. A personal representative owes a fiduciary duty to the estate and the beneficiaries thereof, meaning that the PR is legally and ethically obligated to act in good faith and put his/her own interests aside. The estate of the deceased is in the hands of the personal representative and remains so until all estate-related obligations have been fulfilled. Let’s look at the duties assigned to a personal representative by the state of Colorado.
- Pay off credit and pending bills
All the debts of the deceased must be verified and paid off. A ‘Notice of Appointment’ — mentioning the decedent’s death and your appointment as personal representative — must be sent to known creditors and published in a local newspaper to give notice to unknown creditors that they must make a demand on the estate within four months from the date the notice is published. After this period, a creditor’s claim will not be entertained by the court. However, if a personal representative does not publish such a notice, creditors will have up to a year’s time from the date of the decedent’s death to make a claim.
If a creditor makes a claim against the estate, a personal representative has 60 days to dispute the claim. The creditor has a time window of another 60 days to challenge back.
- Pay the family allowances
As per Colorado’s probate laws, a family allowance of $28,000 (as of 2020) must be paid either to the surviving spouse and/or the decedent’s children who are minors. An additional allowance of $30,000 (as of 2020) is paid to the spouse. These allowances for family and spouse are to be paid before settling the dues of the decedent’s creditors. The sum of the allowance can be increased on request to the court.
- Fulfill the tax obligations
A personal representative has to file the decedent’s income tax returns, reporting incomes and deductions till the day of his death. If required, a PR might have to file income tax returns for the estate separately. Federal and Colorado estate tax returns may be needed if the value of the estate is over a certain amount.
- Distribute estate assets and file for compensation
The personal representative may distribute the estate assets like vehicles, bonds, stocks, etc. among the beneficiaries. This task must be completed in a fair and impartial way to avoid facing a claim in court.
A personal representative and the attorney can file for compensation for handling the estate and fulfilling the PR’s obligations. In Colorado, the compensation is given on passing a “reasonableness test”. Having a record of work done and time spent in estate affairs is useful when making claim for compensation.
- Close the estate
When all estate-related matters are wrapped up, it is necessary to file an informal or formal closing of estate in court. Formal closing would immediately relieve a personal representative of any further duties or obligations, while an informal closing would give any beneficiaries one year to file a claim relating to the administration of the estate.
Under the following circumstances, a personal representative could be held personally liable for actions taken during the administration of the estate:
- Failing to take good care of the estate
- Acting or failing to act in context of estate affairs
- Causing a loss to the estate
- Averting a gain that should have been realized
Common Traps for Personal Representatives
There are any number of things that one must avoid as a personal representative. A common mistake personal representatives make is to allow one or more of the beneficiaries to take personal possessions of the deceased. If these items have value to the estate, it can be problematic to either value or recover them at the time of property distribution. Another trap you must avoid is failing to correctly assess crucial estate assets such as farmland. It is important to find out the correct valuation of such assets before you can distribute them.
Potentially Devastating Mistakes to Watch out For
There are a few things that could spell disaster for a personal representative if they are not attended to. Here are the mistakes that a personal representative cannot afford to make while taking care of an estate.
- Failing to make a comprehensive assessment of assets and liabilities
To be able to distribute the estate’s assets and settle its dues, a personal representative must take into account everything that the decedent owned and currently owes. A PR should review all bank statements, passbooks, and other important documents to assess the financial standing of the estate. Any inconsistency in these assessments can lead to claims from beneficiaries and creditors against the personal representative relating to his/her administration of the estate.
- Communicating inadequately with beneficiaries or creditors
It is imperative for a personal representative to avoid any miscommunication with those who hold an interest in the estate, such as beneficiaries and creditors. A PR should strongly avoid having breaks in communication with all interested parties at any cost. Miscommunication can lead to misunderstanding, which can cause a major conflict when the dust settles near the closing of the estate and the parties did not get what they expected.
- Not having a qualified aide to help you out
Manage an entire estate without professional help can be challenging. It can be physically and emotionally stressful to deal with the beneficiaries and the creditors together, especially after going through the pain of the decedent’s passing. It is advisable as a personal representative to hire professionals, such as an attorney or an accountant, to assist in the administration of the estate.
Contact an Experienced Colorado Springs Estate Planning & Probate Attorney Today
Acting as a personal representative can be a daunting task, but with the right help, all of the responsibilities and obligations of the position can be manageable. Patterson Weaver Law, LLC offers experienced and competent attorneys who can help to navigate the probate process. Contact us today for a free consultation.