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CBA
The Colorado Bar Association
1900 Grant Street, 9th Floor, Denver, Colorado 80203-4336

SO NOW YOU AREA PERSONAL REPRESENTATIVE
I. Introduction This pamphlet is to acquaint you with some basic concepts and with the responsibilities which you are undertaking as personal representative of a decedent's estate.

Under traditional terminology a person designated to administer an estate under a will was called an 11 executor," while a person appointed to administer an intestate (no will) estate was called an "administrator. " In Colorado no distinction is made now. The person appointed is called a "personal representative" in either case and the powers and duties are the same.

Following your appointment as personal representative, the Court will issue "Letters" which reflect this appointment and which will provide evidence to third parties of your authority to act on behalf of the estate. You may need to order certified copies of these "Letters" to present to banks, insurance companies, etc.

II. Your Duties In General Generally speaking, you as personal representative have three kinds of duties to the estate and its beneficiaries:
  1. A duty of impartiality (not to favor the interest of one party over another);
  2. A duty of undivided loyalty (not to put your own interest in conflict with those of the estate); and
  3. A duty to administer the estate with care and prudence.
III. Your Specific Duties More narrowly, you have a series of responsibilities which will be described in some detail below. They involve:
  1. Collecting and inventorying the assets of the estate;
  2. Managing these assets during the period of administration and paying the estate bills (including claims of creditors, expenses of administration, and any taxes which may be due); and
  3. Making distribution to the heirs or the beneficiaries under a will.
  In Colorado we have a flexible system of estate administration which allows you, in consultation with the estate's attorney, several options. Generally you will have a choice as to the degree of formality with which you open or close the estate and as to the extent of Court supervision over your activities as personal representative. Formal proceedings involve notice to interested parties as to the action to be taken and a hearing by the Court. Formal proceedings result in Court orders which are generally final and binding on all concerned. Informal proceedings are more in the nature of administrative proceedings before the Registrar of the Court. Notice is not given and no binding order is obtained in informal proceedings. Normally estates may be opened either formally or informally and may be closed formally or informally. Many estates are opened informally, but closed formally so as to obtain the protection of a Court order as to the administration and distribution of an estate.

The responsibilities detailed below exist whether your appointment is formal or informal and whether administration is supervised or unsupervised.

1. PRIOR TO APPOINTMENT.  If you are named a personal representative in a will you have the power, prior to your appointment, to carry out written instructions of the deceased relating to his or her body, funeral, and burial arrangements. You may begin to take and protect the decedent's property. No property should be removed or distributed prior to the opening of the estate.
2. INVENTORY.  Within 3 months after your appointment you must prepare a written inventory of the assets of the estate on the Court approved form. Under supervised administration and in connection with formal closing, the inventory must be filed with the Court. Otherwise it may simply be given to the interested parties without Court filing.
3. ACCOUNTING.  You have a duty to keep records of all cash and other financial transactions of the estate and to make and provide written accountings to the beneficiaries. In cases of supervised administration or formal closing, the accounting is filed with the Court on the Court-approved form. The report, whether requested to be filed in Court, should reflect in detail the items of cash receipts and disbursement, show the opening and closing cash balances, and must contain a listing of the estate assets at the close of the accounting period. Early in the administration of the estate you should set up an estate accounting system.
4. NOTICE OF APPOINTMENT.  Promptly after your appointment you must prepare a notice of your appointment, mail it to all persons interested in the .estate, and file proof with the Court that this notice has been given. The purpose of the notice is to acquaint the interested persons with some of the facts and ground rules regarding administration of the estate, including the name and address of the personal representative, whether a bond has been filed, and the Court where papers relating to the estate are on file.
*5. CREDITOR'S CLAIMS.  Our probate law provides a method by which claims of creditors are identified and paid. You as personal representative have the responsibility to publish a notice to creditors. Under the statute the notice is to be published once a week for 3 consecutive weeks. Claims which arose before the decedent's death are barred if not presented within four months after the date of the first publication of this notice. Failure to publish extends the claim period to one year from date of death. A claim arising at or after death must be perfected no later than 4 months following the date when the claim arose.

A claim may be perfected either by filing it with the Court or by presentation of it to you as personal representative. If presented to you, although it must be in writing, no specific form is required. For example, a bill received by you in the mail will be a properly presented claim. If you disagree with the claim, the burden is on you to disallow it within 60 days after the end of the claim period or it may be deemed to be allowed. If you dispute the claim, a notice of disallowance must be given to the claimant, and the claimant has 60 days within which to begin proceedings to enforce the claim. You should not pay claims which are only presented orally.

6. FAMILY PROTECTION -ALLOWANCES AND ELECTIVE SHARE. The Colorado Probate Code provides a surviving spouse and/or minor children with a family allowance designed to provide support during the period of administration. The amount authorized by statute is $12, 000. 00, and it may be increased or decreased by Court order at the request of an interested person. The Code also provides for an exempt property allowance in the amount of $15, 000. 00. Where the family is entitled to these allowances they are paid ahead of creditors.

The Code also provides the surviving spouse with an election to take one-half of the decedent's "net augmented estate." The net augmented estate includes both probate type assets (i.e. property passing under a will or by intestacy) and non probate assets (i. e. property passing outside of the probate estate such as joint tenancy property and some proceeds of life insurance). In such case the electing spouse is charged with the value of (a) assets transferred to the spouse by the decedent prior to death; and of (b) non-probate assets passing from the decedent to the spouse.

Once proper requests for allowances or the spouse's augmented estate election are made, the personal representative must respond and should not make distribution until the selection of assets and mechanics of transfer have been worked out.

A spouse or child omitted from a will may also have a right to take an intestate share of the probate estate.

All of these provisions are technical in nature and, if applicable, should be discussed with the attorney for the estate.

7. MANAGEMENT AND INVESTMENT. As personal representative you have the responsibility to collect all the probate assets of the decedent and to manage them prior to distribution. What you can and cannot do may be specified by the language of the will.

Once you are appointed, you have full authority and control over the assets owned by the decedent in his name alone or as a co-tenant with others. Property held in joint tenancy with rights of survivorship is not a probate asset; nor are proceeds of fife insurance payable to a named beneficiary other than the estate.

To put others on notice of your authority, you should have the estate assets reregistered in your name as personal representative. This is completed by using your letters of appointment as evidence of your authority. With real estate, this is accomplished by recording your letters of appointment in the county in which the property is located. For registered stocks and bonds, you will need to submit your letters of appointment along with the securities to the transfer agent and an affidavit of domicile which can be obtained from a broker or bank. (If you need to sell securities to raise cash for estate expenses, you can do so without having the securities registered first. However, it usually takes longer to receive the proceeds.) Bonds in bearer form need not be reregistered.

Since the period of estate administration is relatively short, personal representatives generally do not establish a long-range investment program. While the estate must be made sufficiently liquid to provide for the payment of debts, taxes and expenses, the estate does not necessarily have to be reduced to cash to facilitate distribution. Generally, assets owned by the decedent may be retained, provided they are not speculative in nature and so long as there is proper diversity among the estate's investments.

The standard which Colorado law provides investments is that of a prudent man managing the property of another. The statute provides in part:

In acquiring, investing, reinvesting, exchanging, retaining, selling and managing property for the benefit of others, fiduciaries shall be required to have in mind the responsibilities which are attached to such offices, the size, nature, and needs of the estates entrusted to their care, and shall exercise the judgment and care under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of the property of another, not in regard to speculation but in regard to permanent disposition of their funds, considering the probable income as well as the probable safety of their capital.

8. TAX RESPONSIBILITIES. As a personal representative you will have the obligation to file the final income tax returns for the decedent as well as any gift tax returns. In addition, you are required to file a federal estate tax return if the estate is of sufficient size to require such a filing and a Colorado estate tax return. There is a separate income tax return that must be filed for the estate.

When a person dies, his taxable year ends on the date of death and his income and deductions are reported through that date. If the individual was married as of his date of death, there is an option available by which the estate can join with the surviving spouse in filing a joint income tax return for that year in which the decedent died. In addition, there are some elections that are available to take certain deductions on the decedent's final income tax return or claim them as an expense of administration on the federal estate tax return. If you are in doubt as to what elections are available or how to take them, you should consult with the attorney for the estate or an accountant, if one is used.

As personal representative of the estate you also have the primary obligation to determine whether or not a federal estate tax return (Form 706) and a Colorado estate tax return must be filed. (The old inheritance tax was repealed for persons dying after January 1, 1980.) In determining this, your obligations extend beyond the assets of the probate estate; for under our estate tax system the taxable estate includes other non-probate assets such as joint tenancy property, proceeds of insurance policies and assets in a trust. If the total value of all these assets exceeds $600, 000, then these returns must be prepared and filed no later than 9 months after the date of death. As with the final decedent's income tax returns, there are some elections and options available. These can achieve significant benefits and tax savings for the estate, and it is recommended that you consult with the attorney for the estate to determine what options or elections are appropriate to your particular situation. For example, there are some expenses which you may wish to elect to take as an expense of administration on the estate income tax return as opposed to the federal estate tax return.

The estate is a separate income tax paying entity, and it is necessary to obtain a separate tax identification number from the Internal Revenue Service. This can be obtained by filing a request for a tax identification number through the district director of the Internal Revenue 

Service on Form SS #4. This taxpayer identification number will also be used in opening up estate checking accounts and bank accounts as well as transferring securities into the name of the estate if they are to be held for any period of time. The tax return that is used for paying income taxes for the estate is called a fiduciary income tax return. For the Internal Revenue Service it is designated as Form 1041, and for the Colorado Department of Revenue it is called Form 104: 1. The obligation for filing these returns arises if the estate had any taxable income or had gross income of $600 or more regardless of the amount of taxable income in any taxable year.

What is a taxable year? As personal representative you have the option of using the calendar year or a fiscal year as the taxable year. Only after a careful analysis of the various implications to those either receiving assets from the estate or those to whom the income is payable can a proper decision be made as to what taxable year to use. If you are in doubt as to what is the most appropriate selection, consult the attorney for the estate or an accountant.

The estate income tax returns must be filed on or before the 15th day of the fourth month following the close of the taxable year (April 15 if you use the calendar year). You must pay the entire tax due on or before the due dates for the returns. After the second year, you must file income tax estimates, and make quarterly estimated tax payments.

9. BOND. A surety bond may be required by the terms of the will or by Court order. Bond premiums are payable out of the estate as an expense of administration. Should a default occur which the bonding company has to make good, the company will have the rights against you to the extent of its loss. Where bond is required, you may be able to make arrangements with the Court to reduce the amount of assets subject to bond (such as the deposit of stock certificates in the court registry or establishing restricted bank accounts).
10. COMPENSATION. Under the Colorado Probate Code your compensation, together with that of your attorney, is no longer based on a percentage of assets schedule. Rather it is subject to a reasonableness test ' with time spent and responsibility two of the most important factors. Many individuals, especially family members, choose to serve without compensation other than reimbursement of out-of-pocket expenses. If this is your desire, you should consider filing a fee renunciation to avoid possible income taxation. If you take compensation, it will be taxable to you as ordinary income when received. Further, if you plan to claim reasonable compensation, you should keep a record of tasks performed and the amount of time spent. This is also expected of your attorney. The amount and allocation of compensation for you and your attorney will depend, in part, on your agreement as to allocation of responsibilities.
11. DISTRIBUTIONS. The assets of the estate belong ultimately to the beneficiaries and not to you, and it is good practice to make distributions to beneficiaries as soon as this may safely be done.

Generally, the assets of the estate are paid in the following order:

  1. To distribute trustee or fiduciary property held by the decedent.
  2. To pay the statutory exempt property and family allowances, if claimed and allowed, to close family members.
  3. To pay expenses of administration.
  4. To pay funeral costs.
  5. To pay debts and taxes with preference under Federal law.
  6. To pay expenses of last illness.
  7. To pay debts and taxes with preference under state law.
  8. To pay general unsecured creditors.
  9. To satisfy specific bequests under a will.
  10. To satisfy the interests of the residuary beneficiaries under a will or the heirs at law in the case of intestacy. 

They need not all wait until the closing of the estate.  Rather, payments may be made as priority is determined. Even partial distributions may be made to beneficiaries during administration. If administration is supervised, distribution may be made only following a court hearing and order.

12. TERMINATION. When administration is complete, the estate does not terminate automatically. Estates may be closed either informally or by formal Court order. In formal closings the administration and proposed distribution of the estate is approved by the Court and the personal representative is discharged or released from liability by Court order. In informal closings, the closing statement is filed with the Court, representing that the estate has been fully administered. This procedure does not result in a Court order of discharge but does limit the time within which distributees and creditors can challenge your administration and distribution of the estate.
IV. Time Involved The Colorado Probate Code is intended to speed up the process of administration of estates. With the repeal of the Colorado Inheritance Tax, many smaller estates may be administered and distributed shortly following the end of the creditor's period (usually within 6 to 12 months). The Federal Estate Tax Return is not due until 9 months after the date of death, and larger estates will not be closed until accounts are settled with the taxing authorities. If the tax and probate aspects are handled in a timely and careful manner, the great majority of taxable estates will be able to be closed within a two-year period.
V. Your Liability As Personal Representative As a personal representative you are liable to the beneficiaries for any loss to the estate and for any gain the estate should have realized but did not if:
  1. You failed for any reason, to exercise the care and skill of a man of ordinary prudence in managing the property of another; or
  2. You negligently or intentionally did something you ought not to have done; or
  3. You negligently or intentionally failed to do something you ought to have done.

In certain matters, you may be liable even though your improper action was not intentional or negligent.

VI. Words of Caution This pamphlet cannot answer for you everything which you may need to know in administering an estate. You should establish an early understanding with the attorney for the estate as to what will be expected of you. If you have questions as you go, you should consult promptly with the attorney. Seeking your attorney's advice before you act may avoid more costly legal services later.

This pamphlet is published as a public service by the Colorado Bar Association. Its purpose is to inform citizens of their legal rights and obligations and to provide information regarding the legal profession and how it may best serve the community. Changes may have occurred in the law since the time of publication. Before relying on this information, consult an attorney about your individual case.

 

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