How to Avoid Making Major Mistakes When Distributing Inheritance

The distribution of inheritance in the estate administration process has many potential pitfalls. As a probate attorney, I’ve seen the complexities and consequences that can arise from missteps in distributing money from the estate. Distributions should be handled with caution to ensure that there are no legal repercussions to the executor.

 

Errors in distributions can lead to legal liability and family conflicts. Estate executors can be held personally liable for any mistakes in distribution. Claims can be made by potential creditors, government agencies, or beneficiaries if they receive less than what is believed to be owed. Some of the common mistakes people have asked me to help rectify include distributing assets before creditors have had a chance to present their claims, mishandling tax liabilities, or closing the estate without a written Family Settlement Agreement from all beneficiaries. While I am happy to help resolve prior mistakes, the best practice is “that an ounce of prevention is worth a pound of cure.”

 

How Distributions Should Be Handled

 

Estate executors carry great responsibility managing the estate’s finances. Every estate will reach the point where the executor will be expected to distribute the assets according to the Will and satisfy taxes and debts. It is important to know the potential pitfalls so that the estate’s obligations are handled the right way. The problem lies not just in “keeping the books straight” but ensuring that all legal and tax obligations are met. Many executors are unaware of the different types of taxes which may apply, such as inheritance taxes, final income taxes, potential reimbursements to Medicare or Medicaid, and capital gains taxes. Mishandling any of these obligations opens the executor to personal liability. If an error occurs and cannot be rectified, the executor might be financially responsible for correcting it.

 

In addition to taxes, the rights of potential creditors must also be respected, even if none are known. Executors should ensure potential creditors are notified through publication of the estate. Publication provides a one-year window for creditors to present claims, safeguarding the executor from liability for any undisclosed debts after this period.

 

Estates handled through my office follow best practices to protect the executor. We recommend that each and every transaction be accounted for in the estate with an “accounting” attached to a family settlement agreement. This ensures that every beneficiary has a full picture of the estate and can release the executor from liability before receiving their share. It can be very easy to pay a debt or make a distribution to a beneficiary in the wrong amount or in the wrong priority.

 

The best and safest time to make distribution is when all taxes and debts have been paid and the passing of the one year creditor deadline to present claims. Any distribution before this point comes with the inherent risk that there may be additional claims which have not been satisfied.

 

As a probate attorney to estate executors, I help settle estates efficiently and reduce stress. If you know someone faced with a probate process or roadblocks to a property sale, please have them contact us for a free evaluation at: 

Phone: (215) 918-4242 

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If you are not quite ready for a consultation, download our complementary probate handbook HERE. We’ll send you helpful probate guides and resources so you know how to handle the estate.