Distributing assets to beneficiaries after death is usually a complicated procedure. Depending on the advance preparation the decedent may or may not have done, estate distribution can get caught up in lengthy court proceedings or it can be reasonably straightforward. Ultimately, the intention of the handlers of an estate after death, whether they be family members or the courts, is to fulfill the distribution wishes of the decedent.
Probate is the process by which a decedent's possessions are distributed after his death. If the decedent drafted a will, then the probate court administers the payment of creditors and the overall distribution of the estate according to the directions of the will, assuming it is legally valid. If a person dies intestate, or without a will, then the court selects an administer to divide the estate according to the mandates of state law. Probate costs typically consume between three and seven percent of the estate's total value.
If the decedent established a living trust, then the probate process is avoided altogether, and the estate is distributed according to the terms of the trust. A living trust is a legal document that places assets under the management and direction of a trustee, usually the creator of the trust. In addition to management and control rights, the trustee is able to name beneficiaries of the trust. Assets in a living trust are not subject to state probate laws but rather must legally follow the instructions drafted in the trust document.
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Executors and Administrators
An executor is a person authorized by a trust document to manage and/or distribute the assets of a living trust, while an administrator is a court-appointed official who serves the same purpose for people who die without a will. Each representative is authorized to act according to a specific set of rules. In the case of an executor, the rules are found in the living trust document, while administrators must follow state probate law.
Disbursements are made after the decedent is confirmed to have died and an executor or administrator has been duly appointed. In practical terms, an executor or administrator must provide a death certificate to the financial institution holding the assets and must verify their authority to act. Executors can provide this authentication with the trust document, while administrators will have to provide a court order validating their authority. Usually, the authorized agent will make specific disbursements according to language in the trust or the state's procedures, then compile a value for the estate assets. If there are multiple beneficiaries, disbursements are generally made on a percentage basis. In the case of stocks, calculations may end up as fractions, in which case a cash supplement is made to heirs who receive less than a full share.
For most estates, there is no tax when stocks are distributed to beneficiaries after death. As of 2009, only estates in excess of $3.5 million in assets were required to pay tax on the amount transferred, at rates up to 55 percent. In fact, heirs receive what is known as a "step-up" in basis on any stocks inherited, meaning their effective purchase price for inherited stock is the price on the day they receive it, rather than the price the decedent paid for it. Particularly for stock that has been owned for a long time, and may have been purchased for a relatively small price, the tax savings to heirs can be substantial.