Preparation of the Administration Account is undoubtedly the most challenging step in the Probate process. Often Personal Representatives who are not yet represented by an Estates & Trusts attorney find this to be the point where they reach out for legal assistance. Good recordkeeping, organizational and administrative skills are absolutely essential to the production of the Administration Account. If you would like assistance preparing the Administration Account for your Estate, you might like to CONTACT US for a free 15-minute consultation or FIND AN ATTORNEY.
In general, the First Administration Account will give the Court a complete financial accounting of everything that has occurred in the Estate administration process from the decedent’s date of death up to the date that the Account is rendered. Thus, the Accounting begins with the Inventory Report value, as this is assumed to be the exact value of all Probate Estate assets. The Inventory value is the Estate to be Accounted For. This value is then adjusted for any gain or loss due to the sale of any property or tangible personal property of the Estate. For instance, if real property of the Estate was inventoried at $300,000 but was sold for a gross sales price of $375,000, then the Accounting will need to reflect that gain and add the $75,000 gain to the Estate to be Accounted For. On the other hand, if a vehicle was inventoried at $7,500 and sold for $6,800, then the Accounting will need to reflect the loss and subtract $700 from the Estate to be Accounted For. Similarly, the Accounting also requires a section to show gains or losses on the sale of securities or other assets and/or Tangible Personal Property. This too will be an adjustment to the Estate to be Accounted For.
The next adjustments to the Account will be sections to account for interest income, dividend income, and capital gains or losses. Again, these are all adjustments to the Estate to be Accounted For. There will also be a section for all Miscellaneous Income to the Estate. Miscellaneous income might include refunds, last paychecks, final checks from annuities, pensions or Social Security. It might also include any entries on the real property sale Settlement Statement (HUD-1) that add to the transaction.
Once all the items above have been accounted for, positive or negative, the Accounting should now arrive at an Adjusted Estate to be Accounted For.
The next step in the Administration Account will be sections of the Account to show all of the various expenses of administration of the Estate. The first section here will be Funeral and Burial Expenses. These expenses may include the cost of the funeral home, cemetery, monument, obituary, flowers, videos, musicians, memorials and even the reasonable cost of a family meal, repast or shiva. Often, a family member may have laid these costs out, or paid them from insurance proceeds to which they were named beneficiary. These individuals are entitled to be reimbursed for the costs they incurred. Thus, the Estate must be adjusted to contemplate paying these individuals back prior to making distributions to heirs.
If the Will specifically allows for it, there may next be a section for reimbursement of travel expenses for those who traveled to the funeral. Generally, these expenses are only allowed if there is a Will and if the Will quite specifically states that the Estate will reimburse these travel expenses.
The Account will have a section for Miscellaneous Expenses of Administration. These will be all of the expenses incurred in the course of administering the Estate that do not specifically fit into one of the other specific sections. Examples of expenses that might be listed in this section include insurance payments for real property or vehicles, property taxes, water bills, property maintenance, homeowners association fees, postage or express package fees, bank fees, expenses listed on the HUD-1 Settlement Sheet when real property is sold, vehicle registration fees, necessary repairs to put a vehicle or property into saleable condition, costs for cleanout of the property, tax preparation fees, and any other legitimate expenses of administration.
The Account will also have a section for expenses related to the Register of Wills. This section should include the cost of the Bond, the cost of publishing statutory Notice, any filing fees and of course the appropriate Probate Fee.
If there are any Debts of the Decedent, there will a section in the Administration Account for these expenses. Items in this section might be final payments to credit cards or payments made in satisfaction of Claims filed Against the Estate.
The Administration Account will also have a section to deduct Counsel Fees and Personal Representative Commissions. These topics are covered in more detail elsewhere in this Guide.
If the Estate is subject to Maryland Inheritance Tax, or Maryland or Federal Estate Tax, there will be a section in the Administration Account to deduct these amounts. If there is Maryland Inheritance Tax, there will be a section to calculate this amount. The topics of taxation will be covered in more detail below.
If the Account you are preparing is a Final Administration Account (or, dependent upon the status and progress of Estate administration, if it is an Interim Administration Account) it will have sections to contemplate distributions of Bequests and Residuary Distributions to heirs and/or legatees. On a Final Account, all Bequests and Residuary Distributions will be contemplated. If an Interim Account, and depending on status and progress, partial distributions may be contemplated. In that instance, the Account will show an amount of the Estate Retained. The Retained amount may be for outstanding taxes or expenses and may include the value of assets not yet sold, such as property.
The Administration Account must include a Verification, Certificate of Service, a statutory Notice to Interested Persons and a Proposed Order. The Verification is an Affirmation to the Court, under the penalty of perjury, that the information on the Administration Account is true and correct to the best of the Personal Representative’s knowledge, information and belief. The Certificate of Service affirms that a copy of the Administration Account has been mailed or otherwise served to all heirs and legatees. The Notice to Interested Persons notifies heirs and legatees that an Administration Account has been filed as well as their rights to file Exceptions to the Account, and the timeframe they have to invoke their rights. The Proposed Order is for a Judge to sign once an Account has been audited and Approved.