5 stages to estate administration

24 Feb 5 stages to estate administration

5 stages to Estate Administration

Stage 1. File petition of the appointment of Personal Representatives

First thing in the estate administration process is to locate ther important papers related to the estate, such as Will, burial memorial instructions, Trust documents etc.

Study the estate documents in front of the family and beneficiaries, and consider and ascertain whether the deceased dies with testacy (dying with a valid will) or intestacy (dying without a will).

The probate process begins with the filing of the petition with the High Court to either

  • admit the will to probate and appoint the executor or
  • if there is no valid will appoint an administrator of the estate

Stage 2. Obtain Grant of Probate or Letter of Administration

Following appointment by the court, the personal representative is to

  • publish a death notice in local newspaper and serve as public notice of your estate’s probate. This enables people who have an interest in your estate (such as creditors) to file a claim against the estate within a specified time period.
  • with the public notice, most of your movable assets like bank accounts, investments, shares etc will be frozen. Any transactions or title transfers come to a halt.

Stage 3. Determine All Assets & Liabilities

Take inventory of all the movable or immovable assets in the estate. It is important your family needs to know and has easy access to the list that shows what your estate includes. Even a slightly out-of-date list can serve as a good starting point.

To do so, financial documents should be located include bank statements, share investment record, life insurance policies, corporate records, car ownership record, property title deeds, and the deceased past three years of income tax returns.

Estate inventory is important for a number of reasons:

    • To make sure the estate has enough to cover your liabilities and distributions to beneficiaries.
    • To ensure that all assets are accounted for.

Key activities at this stage include :

    1. assemble all assets. This may include conduct land searches to locate immovable assets or business registration searches for businesses.
    2. contact financial institutions or companies where the deceased assets are located or check if there is a charge on the assets (this means there is money owed to the financial institutions)
    3. protect the assets, Protect the business interests, collect rental or business income. Buy fire or burglary insurance for the properties.
    4. value the assets . For assets including real estate, investment, businesses or personal effects including jewelry, art work and collectibles, they’ll need to be appraised by a professional valuer. A statement of assets and liabilities is prepared
    5. transfer assets ownership to personal representatives prior to payment of taxes and liabilities.

Stage 4. Determine Priority and Pay Liabilities

Once the statement of assets and liabilities are completed, the next step is to determine payment priority of the deceased estate.

Key activities at this stage include :

  1. determine validity or legitimacy of creditor claims.
  2. establish cash flow needed to settle the liabilities.
  3. service ongoing estate administration expenses

At this stage, understand the payment priority gazetted by law is very important.

Under law of Malaysia , Income Tax Act 1967 Sec 74 Paragraph (5) spell out clearly the personal representatives must not distribute the estate unless provisions for full or reasonable tax payment has been made. Paragraph (6) has pointed out that failure to comply with the act will makes the personal representatives liable to pay a penalty equal to the amount of tax payable.

Hence, the liabilities of deceased are settled according to following hierarchy :

  • 1st – file income tax and obtain clearance from Inland Revenue Board (IRB)
  • 2nd – settle liabilities of secured creditors such as mortgage, personal loan, business loan guarantees, car hire purchase, credit card debts etc.
  • 3rd – settle liabilities of non secure creditors such as medical cost, final bills, estate administration legal fees, accounting fees, money owed to friends, relatives etc.

Please note all these liabilities and payment obligations are required to settle by cash. In most instances, if the estate is “asset rich, cash poor” then the personal representative is permitted to sell estate assets to satisfy the payment obligations. All the decision has to inform the beneficiaries to avoid future disputes.

Stage 5. Distribute Assets

Usually the very first question the beneficiaries will ask the personal representative is “When can I receive my portion of inheritance?” However, unfortunately for the beneficiaries, distribution of estate inheritance fall at the final stage in the estate administration process.

What this means is the beneficiaries always receive the residual value of the estate after all the liabilities, debt obligations, bills are paid.

Unless proper estate planning strategy is implemented to preserve the value of the estate, beneficiaries of the estate always face with the estate shrinkage issues and receive lesser than intended.

Key activities at this stage include :

  1. prepare final detailed accounting to beneficiaries
  2. transfer legal title of immovable assets
  3. distribute of movable assets, gifts
  4. settle disputes regarding any claims brought by beneficiaries
  5. obtain sign-off and be discharged from the role of personal representative
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