A personal representative is charged with administering the estate. In general, that involves collecting and valuing the decedent’s assets, paying valid debts, expenses of administration, and taxes, and then distributing the remaining assets to the appropriate beneficiaries.
In Colorado, whether the proceedings are formal or informal, persons who are not disqualified have priority for appointments as the personal representative in the following order:
- The person with priority as determined by a probated will including a person nominated by a power conferred in a will
- The surviving spouse of the decedent who is a devisee of the decedent; the surviving party to a civil union who is a devisee of the decedent; a person given priority to be a personal representative in a designated beneficiary agreement
- Other devisees of the decedent
- The surviving spouse of the decedent
- The surviving spouse of the decedent; the surviving part to a civil union
- Other heirs of the decedent.
1. Opening the Estate
The first step in the probate process is opening the estate and securing the appointment of the personal representative. This can be done formally or informally.
In an “informal” proceeding, an application for informal probate and certain documents are filled with the District Court of the county in which the decedent was domiciled. The Court clerk will issue Letters that are evidence of the personal representative’s authority on behalf of the estate.
In a “formal” proceeding, a petition to the court is filed and the Probate Judge, Magistrate or Registrar may appoint a Personal Representative.
2. Information of Appointment
Within 30 days after the appointment of a personal representative, a copy of an “Information of Appointment” must be sent to each heir and beneficiary under the Will.
3. Notice to Creditors
A newspaper notice must be published to notify claimants of the decedent’s death, and that a probate administration has been commenced. This notice also limits the period during which claimants may file claims.
The Notice to Creditors is published in a paper of “general circulation” in the county of the decedent’s domicile.
Claims can be “presented” to the estate either by filing them with the Court, or by delivery to the personal representative, within four months after the first publication of notice to creditors.
However, known claimants may file claims until one year after the date of death, unless actual notice of a shorter period is sent to them.
A personal representative has a duty to pay all proper claims promptly.
If the estate does not have enough assets to pay claims, Colorado law provides a list of the priority of certain claims.
4. Disallowance of claims
If the personal representative decides that a particular claim should not be paid, a copy of a Notice of Disallowance should be sent to the claimant, and the original must be filed with the court.
The claimant will then have sixty days in which to file a Petition for Allowance. If the petition is filed, the matter will be set for hearing. If the petition is not filed, the claim will be barred.
5. Inventory and Asset Information
A personal representative must assemble, collect, and value all of the estate assets, and prepare an inventory of the assets that were in the decedent’s name alone (not in joint tenancy, with a beneficiary designation under a contract, or in a trust).
The Inventory is due within three months after the appointment of the personal representative.
The personal representative must be careful not to commingle estate assets with any joint tenancy assets, the separate property of a beneficiary, or the personal representative’s own assets.
After all claims and taxes are paid, the assets must be distributed to the proper beneficiaries.
6. Accounting and Financial Records
A personal representative must maintain complete records of all cash and investment transactions of the estate. Other beneficiaries have the right to information concerning the estate, to assure themselves that the personal representative are properly discharging his or her duties.
An estate checking account should be opened in the name of the estate, and all receipts and disbursements should be run through that account.
7. Ancillary Probate
If the decedent owned any real property, including timeshares or oil and gas interests, in his own name in states other than Colorado, probate proceedings may be necessary in those states to transfer title.
8. Estate Taxes
If the value of all property in the decedent’s name, joint assets, life insurance owned by the decedent, etc. exceeds the federal exemption amount ($5,340,000 in 2014), a federal estate tax return must be filed within nine months of the date of death.
The tax rate is 40% of the net estate over the exemption amount.
In order to prepare the federal return, a complete list of all assets, together with information supporting the valuations as of the date of death, must be assembled.
Appraisals must be obtained for all real estate, date of death balances must be obtained for bank accounts and investment accounts, and stocks must be valued as of date of death. Particularly valuable household items and collections should also be separately listed and appraised.
Property in an estate may also be reported at its value six months after the date of death, if the total value has decreased.
9. Inheritance Taxes
Colorado does not have its own estate/inheritance tax. However, if the decedent owned any real property in states other than Colorado, inheritance tax returns may be necessary in those states.
10. Income Tax Returns
A. Final Individual Return
The decedent’s final federal and Colorado income tax returns, covering income received and deductible expenses paid during the period beginning on January 1 of the year of death, and ending on the date of death, must be prepared and filed, and any tax due must be paid.
B. Estate Income Tax Returns
The estate is a separate taxpayer for income tax purposes.
A taxpayer identification number must be obtained from the Internal Revenue Service, and the Notice of Fiduciary Relationship (IRS Form 56) must be filed. A federal income tax return (Form 1041) reporting income received by the estate will be required in all years in which the estate’s gross income exceeds $600, or there is any taxable income. A Colorado fiduciary income tax return (Form 105) will generally be required in all years in which a federal income tax return is required to be filed.
11. Accountings and Closing the Estate
After all known debts, administration expenses, and taxes have been paid or provided for, the personal representative should prepare a Final Accounting.
The Accounting is a statement of all cash receipts and disbursements of the estate.
The personal representative may close the estate informally or formally.