Taking on the role of personal representative, whether appointed by the court or selected by a loved one, can be a tricky role. While you’re finding a way to deal with your grief, you also have to bring your skills to bear to deal with all the properties and debts that your loved one has left behind.
This can be considered the “business side” of death. And your responsibility as personal representative is two-fold: you are responsible for gathering, managing, and preserving all the properties that the deceased has left behind, while at the same time managing their debts, and any creditor claims brought against the estate.
What is the Fiduciary Duty to Gather and Preserve?
As a personal representative, you are considered a fiduciary, which means that you are occupying a position of trust. And being the personal representative of a person’s estate means that you are responsible for the entirety of that estate.
Under California law, you are expected to manage the estate with ordinary care and diligence. This responsibility includes the following:
- You must gather, preserve, and manage all of the estate assets
- You must settle all the valid and approved liabilities and creditor claims against the estate
- You must distribute the remaining assets to the rightful beneficiaries
All actions and transactions undertaken by the personal representative, including any costs you may have incurred to preserve the estate assets, will eventually be reviewed by the court.
If, in the court’s opinion, you did not exercise ordinary care and diligence managing the estate, and the estate suffered any loss or depreciation, then you will be personally liable for that loss – otherwise called a surcharge.
Marshaling the Estate Assets
“Marshaling assets” means identifying, taking possession of, valuing, and documenting all properties left behind by the deceased.
This can include:
- Real properties
- Personal properties such as cars, jewelry, collectibles, artworks, and cash
- Bank, retirement and other financial accounts
- Digital assets
This one task can be quite challenging in itself. You would need to make sure that you have gathered all valuable properties left behind by the deceased – and sometimes some properties and their locations are not common knowledge by most of the surviving family members.
Digital assets may also be challenging – digital accounts, cryptocurrency, cloud storage, email accounts, and various subscriptions and online assets may be difficult to locate. And even when found, may require unique passwords or access keys.
A good bulk of your responsibility as a personal representative is locating all these properties, making sure you have access to them, preserving them under the name of the estate, and preventing any possible damage or destruction that would compromise their value.
When to Bring in a Probate Referee
Most times, as soon as you have gathered the estate assets, determining their value is not difficult. Bank statements, real estate appraisals, jewelry appraisals – these allow you to set down a definite monetary value on the properties comprising the estate, and thereby determine, the assets versus the debts, and possible distribution to the heirs.
But the value of some properties are not so easy to quantify. Even when you do have an appraisal for real estate, for instance, the court might require a more current valuation.
This is where the probate referee comes in.
The role of the court-appointed probate referee is to appraise estate assets and determine their fair market value at the time of death. Valuation by the probate referee is what establishes the official value for tax reporting and accounting purposes.
Managing the Creditors and Creditor Claims
The other side of the personal representative’s obligations, aside from gathering estate assets and properties, is to pay out on legitimate and valid claims against the estate. This can comprise taxes, mortgages, debts, and other liabilities left behind by the deceased.
Once the court issues the letter of authority to the personal representative, creditors have four months to file a formal claim against the estate or their claim will be forever barred. This does not mean, however, that the personal representative is a passive agent.
The management of debts is one potential hidden risk for a personal representative. The personal representative has the obligation to observe reasonable diligence in identifying and notifying all known or reasonably ascertainable creditors of the deceased. This can include individuals, financial institutions, and government agencies.
Reasonably ascertainable means effort invested in talking to individuals who might know of debts left behind by the deceased, a review of tax returns, bank statements and credit reports to make sure that you have identified all possible valid claims and any applicable legal or statutory limits that apply to each creditor.
For instance, if the deceased, or the surviving spouse, was a Medi-Cal beneficiary, then the Personal Representative is obligated to notify the Director of the Department of Health Care Services (DHCS) at the Sacramento Office. This notice must be sent within 90 days after the date of death, and be accompanied by a copy of the person’s death certificate. This 90-day notice requirement should be adhered to even if formal probate administration has not yet begun.
A Quick Look at Priority of Payments
Once the personal representative has ascertained which creditors have valid and approved claims, paying out on those liabilities from estate funds should be done in a specific order.
California Probate Code §11420 sets out a strict order of priority when it comes to payment from estate funds for costs, expenses, and creditor claims, which are:
- Expenses of administration, including the administration of properties under a lien or mortgage
- Obligations with security including mortgages, deed of trust or other forms of lien; should the security be insufficient, then the remaining debt shall be considered a general debt
- Funeral expenses
- Expenses of the deceased’s last illness
- Family allowance
- Wage claims
- General debts
§11420 goes on to note that obligations within each class do not have priority over the others of the same class, but that no payments are to be made on a class unless all those included in a prior class are paid in full.
For instance, the personal representative cannot pay out on claims related to the deceased’s funeral expenses unless all expenses of administration and secured obligations are settled first.
Should the personal representative disregard this statutory priority of payments, he could find himself personally liable. This can happen if, for instance, the personal representative elects to pay the balance of an unsecured personal loan before paying for the costs of the deceased’s last illness. Here, though well-intentioned, personal representatives can often find themselves making costly mistakes if they disregard the priority of payments.
Closing the Estate and Final Discharge
Once all the assets have been marshalled, creditor claims resolved, and the remaining assets and properties of the estate have been distributed to the beneficiaries, the personal representative can petition for discharge.
The court will review the personal representative’s records and accounting of the estate, and if all is approved, the court will issue a formal discharge. This releases the personal representative from all the responsibilities and liabilities that came with their position. It is also a confirmation that they have performed their duties fully and within the legal standard of care.