If you are acting as an Executor or Administrator of an Estate, you may be asking yourself: when can I distribute the estate assets that I have collected to the beneficiaries (in the case of a Will) or distributees (in the case of no Will) of the estate.
In New York, an executor (in the case of Will) or Administrator (in the case of no Will) is cautioned not to distribute the estate assets before seven (7) months have passed after obtaining Letters Testamentary (in the case of a Will) or Letters of Administration (in the case of no Will). This is because in New York, if a creditor makes a valid claim within seven months of the issuance of Letters, and there are no more funds left in the estate to pay the claim, the Executor or Administrator would be personally liable to pay those claims. Therefore, it is a good idea to wait out the seven months just in case a creditor of the estate comes around, even if you suspect there aren’t any. Waiting is also a good way to protect yourself as Executor or Administrator (fiduciary).
Although a fiduciary can distribute the estate assets after seven months, it is a good idea to maintain a reserve in the event you need to file tax returns. If federal or state tax returns are necessary, they will need to be filed within nine months of the decedent’s death, or alternatively, the fiduciary may need to request an extension. As a result, it may be wise to wait to distribute some of the assets until all tax matters are concluded with the IRS.
What Do I Need to do Before I Distribute the Estate Assets?
Once the seven months have passed (or more, if you need to take other steps to wrap up the Decedent’s affairs such as file tax returns or sell or liquidate property), you will want to distribute the assets to the beneficiaries or distributees.
Before you distribute, you should prepare an accounting and a Receipt and Release for each of the beneficiaries or distributees to sign. The accounting can be “informal” and does not necessarily need to be approved by the Court. At times, however, the accounting may need to be “formal” also known as “Judicial” or, one that is approved and settled by the Court.
The accounting sets forth all the money you received as fiduciary, including, all the initial assets received, income, and interest. It also sets forth all the expenses and disbursements made from the estate account. It will also list the beneficiaries or distributees and the money the beneficiary or distributee is entitled to, either under the Will, or through intestacy.
The accounting will also include the amount of commissions that the fiduciary will be receiving for acting as the fiduciary. Once prepared, this accounting should be disseminated to the beneficiaries or distributees for approval.
How will those individuals express their approval of the accounting? Through a legal document called a Receipt and Release. This Receipt and Release is a legal document with two main functions. First, the beneficiary acknowledges his/her receipt of his/her inheritance; that he received his appropriate share of the estate. Second, it releases the fiduciary (the executor, administrator or trustee, whichever the case may be) from future liability towards the beneficiary or the estate.
Why Do I Need an Accounting and a Receipt and Release?
Must you do accounting? Not necessarily. However, without an accounting, at the very least an informal accounting, you cannot accurately calculate and pay out fiduciary commissions (or, the money you get for doing your job as executor or administrator).
How about the Receipts and Releases? Are they required? Can’t I just use my bank statement which includes the canceled checks as proof that the beneficiary or distributee received their correct share. While Receipts and Releases are not mandatory, if you distribute the money to the beneficiaries without the Receipt and Release, you may have taken care of the receipt part with canceled checks, but you will not have taken care of the release part of the agreement. You will not be “off the hook” so to speak from future liability.
This means that at any later date, a beneficiary can come back, sue you, and hold you accountable for any missteps you may have taken. As such, it is good practice to secure a release for your actions as fiduciary when informally resolving an estate.
Can I Give Summary Statements Instead of Full Accounting before I Distribute the Estate Assets?
If you do not want to invest in the time and expense of an accounting, you may be wondering if you can give summary statements of the accounts in lieu of an accounting.
The answer is, yes you may however, again, a summary statement does not allow you to accurately calculate your commissions.
What If I Don’t Secure A Receipt and Release Before I Distribute the Estate Assets?
If you do not secure a release, a beneficiary can come in at any time, even after the money is distributed, and compel an accounting of your actions in Court. As previously mentioned, a beneficiary or distributee can request an Accounting (or a reconciliation of all assets and expenses) seven (7) months after Letters Testamentary (when there is a Will) or Letters of Administration (when there is no Will) are issued.
Technically the statute of limitations do not run on their accounting claims until after the issuance of an Order Approving your Final Account. In many instances, you are not going to seek such an Order Approving your Final Account because you will want to settle your account informally. Because you will want to settle informally, your receipt and release will provide provisions which will preclude your beneficiary from being able to sue to compel an accounting.
Thus, not securing such a release keeps the door open for your beneficiary to compel an accounting or otherwise sue you for your actions as a fiduciary. Close the door – get a Release.
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