Administration or No Administration of Decedent’s Assets

Assets of a decedent’s estate can pass at death either with or without administration, i.e., a court supervised probate and/or a trust administration. It depends on how the decedent’s assets are titled, the gross value of the decedent’s entire estate (excluding non-probate assets) and whether the asset(s) is (are) inherited by a surviving spouse / surviving registered domestic partner.

Administration largely occurs between the death of the decedent and the major distribution of the decedent’s estate. The person administering the decedent’s estate – either a personal representative (probate) or a successor trustee (trust) – is a “fiduciary,” i.e., legal representative of the estate. A fiduciary, amongst other things, must notify the decedent’s heirs/ beneficiaries and creditors of the administration; inventory, appraise and safeguard the decedent’s assets; and pay the decedent’s debts and taxes. At the end, the heirs / beneficiaries receive their distributions.

Not all inheritances, however, require an administration. That is, assets that pass to designated death beneficiaries – such as “pay on death” bank accounts, “transfer on death” brokerage accounts, retirement accounts, and any insurance or annuity policies – usually pass without administration: The death beneficiaries present the deceased’s death certificate and complete necessary papers.

Also, the decedent’s share of assets titled as, “joint tenancy with right of survivorship” pass to the surviving joint tenant(s) by means of an affidavit.

Similarly, assets that are gifted during the donor’s life avoid administration. That includes, lifetime gifts of real property where the decedent while alive may have retained either a life estate or a lifetime right of occupancy. Simply recording the deceased tenant or occupant’s death certificate ends the decedent’s interest.

Next, small estates that are under the probate threshold (gross value) do not typically require administration. Either an affidavit or a small estate petition to the court can be used to claim or to retitle the assets in a small estate.

Assets that do not involve the appointment of a fiduciary do not require administration. No administration typically means no notice to the decedent’s heirs / beneficiaries and no notice creditors of the decedent’s estate.

With an administration, however, notice to the decedent’s heirs or beneficiaries invites a possible legal contest (e.g., “ a will contest”) over the decedent’s estate planning documents. With administration, notice to the decedent’s possible creditors invites creditor claims against the decedent’s assets subject to administration. With administration, the fiduciary usually needs significant assistance from an attorney.

There are, however, important disadvantages to, “no administration,” including the following: First, with real property assets, the use of the lifetime estate or joint tenancy approaches requires making a lifetime transfer (gift) of an ownership interest; Second, any lifetime gift of appreciated assets (i.e., assets that have increased in value while owned) means that the recipient does not get an adjusted “date of death” income tax basis; Third, assets that are transferred outright (free and clear) without any administration to designated death beneficiaries are not protected from the beneficiary’s own creditors, predators, and the beneficiary’s bad choices; and Fourth, no administration may be the product of undue influence over the decedent (while alive) where the decedent was coerced to designate death beneficiaries and to avoid administration and fiduciary supervision.

Typically, some assets pass without administration and other assets pass with administration. Typically, assets that pass with administration are the decedent’s real properties and the decedent’s investment accounts. Having some bank accounts pass without administration can be very helpful during an administration to provide immediate cash where and when needed.

The foregoing discussion is a simplified overview and not legal advice. Consult an attorney. Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.