One of the first questions I hear from clients who have been appointed an executor or administrator is “How do I finalize or settle this estate?” After the fiduciary, (i.e., an executor or administrator) of a New York estate has fulfilled their various responsibilities (see my blog post “What are the Duties of an Executor of a New York Will”) they should prepare to make final distributions of estate assets to the beneficiaries. The fiduciary should not make such final distributions prior to seven months from the date of their appointment or they run the risk of being held personally liable for any unpaid debts of the estate that may arise after making said distributions. Surrogates Court Procedure Act Section 1802 allows creditors this seven month period to present claims to the fiduciary.
After seven months have elapsed, the fiduciary should have their attorney prepare an accounting which should set forth all assets received by the fiduciary, expenses paid and the proposed distribution of assets to the beneficiaries. The accounting should be sent to the beneficiaries together with a document typically called a “Release, Receipt and Waiver” which they will be asked to sign if they agree with the accounting. As its name implies, by signing this document the beneficiary acknowledges the amount of their distribution, releases the fiduciary from further liability and waives a formal judicial accounting. After receipt of all the releases, the fiduciary should send checks to the beneficiaries closing out the estate account(s). The signed releases are typically retained in the fiduciary’s attorney’s file but they can be filed with the Surrogate’s Court.
If any beneficiary doesn’t approve the accounting and refuses to sign a receipt , release and waiver, the fiduciary will have to resort to a judicial accounting in which he/she petitions the Surrogates Court to approve their account. Such judicial accounting proceedings are quite complex and costly so if a beneficiary raises a minor objection to the accounting the fiduciary and beneficiary should attempt to resolve it without court involvement.
If the estate is liable for fiduciary income taxes for the tax year in which the final distributions are made, the final tax returns will include the distributions to the beneficiaries as a deduction. Due to this distribution deduction, no tax is payable by the estate but rather each beneficiary will receive a form K-1 setting forth their share of the estate’s income for the final year, which they will need to declare on their personal income tax returns and pay the appropriate tax.
As you can see from the above, the assistance of experienced professionals is essential in properly settling an estate if the fiduciary wishes to be absolved from any future liability.