Understanding Terms.

“Probate” refers to the process of authenticating a deceased person’s will. “Estate administration” is the process of settling the affairs of a deceased person, whether the person died with a will or without. A “testate estate” is an estate with a will, but an “intestate estate” is an estate in which the person did not have a will. The “residuary” or residue” is what is left over after debts, taxes, and expenses are paid and specific gifts of property are distributed. So, a “residuary beneficiary” is one of the people entitled to the residue.

When estate administration is begun, the court appoints a person or a bank with a trust department as the decedent’s “personal representative.” The personal representative swears an oath as a court officer to execute the laws of the state in settling the decedent’s affairs. In a testate estate, this person is sometimes called the “executor,” and in an intestate estate, the person is sometimes called the “administrator.” A personal representative is sometimes also referred to as a “fiduciary,” which is a person who undertakes duties for and is responsible to others. In Iowa, when the court orders the appointment of the personal representative, the clerk of court then issues to that person “letters of appointment,” which is the personal representative's proof of authority. 

Why do this?

The purpose of estate administration breaks down into three main objects and phases:

Collecting the decedent’s property (and making the appropriate reports to the court, taxing authorities and beneficiaries (or statutory heirs));

Paying the decedent’s debts and taxes and any estate or inheritance taxes owed; and

Distributing the net balance of the decedent’s property to the intended beneficiaries (or the statutory heirs).

We need a court-appointed personal representative mainly because of the the character (and sometimes the extent) of the decedent's property. For example, if the decedent was the sole owner of stock in a publicly traded company (whether it is Google or ABC Widgets, Inc.), the shares need to be liquidated or transferred in kind to the beneficiaries. The company whose stock the decedent owned and its transfer agent obviously are not in business to decide who has the power to sell or reregister the stock or who gets the stock from the decedent's estate. They want good documented authority of a person authorized to act for the decedent, and that comes in the form of a court-certified document (in Iowa called "Letters of Appointment") that shows who has that power. Similarly, the marketable title rules in Iowa dictate that an interest in land be conveyed by a personal representative if the decedent was the sole owner of an interest in that land. On the other hand, if these types of property are held by the decedent, for example, in joint tenancy, there may not be a need for a personal representative because the law dictates to whom the property goes and because there is only a need to present proof of death to complete the transfer.

Important Milestones.

In Iowa, estate administration has a number of important milestones and deadlines, all of which are typically accomplished through the cooperation and assistance of the estate’s attorney. Upon appointment, the executor must give notice by mail and by publication in the newspaper of the administration of the estate. The mailed notice must go to known beneficiaries and creditors, and a notice must be served upon the Iowa Department of Human Services. The claims of creditors and challenges to the will are cut off four months after the second publication of notice in the newspaper. Within 90 days of appointment, the personal representative is required to make report (frequently called the “probate inventory”) to the court. Within nine months of appointment, the personal representative must file Iowa inheritance tax and federal estate tax returns, if required. The estate's income tax year is also an important factor in administering an estate.



Income Taxes. An estate, like a person, is a taxpayer. While it can be on a calendar year, it typically has a fiscal year that ends on the last day of the month preceding the month of death (e.g., if the death is on the 15th of May, the fiscal year ends on April 30). The estate will have its own taxpayer identification number. The estate will file its own tax return, Form 1041 Fiduciary Income Tax Return. Typically, the income of the estate will flow through the estate to the residuary beneficiaries. In the final year, if expenses exceed income, as they often do in a first and final tax year, the “excess deductions” flow through to the residuary beneficiaries.

On the Matter of Fees.

Iowa probate fees tend to be somewhat modest when compared to those of other states. The court costs assessed are minimal, $30 for the first $25,000 of valuation and $25 for each additional $25,000 of valuation (a basic $300,000 estate will pay about $400 in court costs when costs for orders and certifications are included). The executor is entitled to a fee equal to approximately two percent of the gross value of the estate. Likewise, the Iowa Probate statute allows the attorney for the estate a reasonable fee on the same schedule as the executor. A shorthand calculation of the statutory fee is: (gross value of the estate - 5,000) x .02 + 220 = statutory fee. It should also be noted that the executor may have an itemized statement from the attorney for the estate, and the fees must be approved by the court. The time and effort involved for both the executor and the attorney in settling the affairs of a decedent generally is substantial and involves significant expertise on the part of the attorney to make things go smoothly. If the executor is also a beneficiary, it may not be in the executor's interest to take the fee because the fee is taxable income to the executor (often the executor is also a beneficiary entitled to all or a large portion of the same monies free of income tax.

How Long Must This Go On?

The time necessary to administer an estate varies greatly from estate to estate. So, before comparing any two estates, be sure that you are comparing apples to apples: Great Aunt Bessie might have had two certificates of deposit and a rocking chair and may have been over and done with in five months, which is an estate much different to administer than Grandpa Fred's 160 acres of farmland in two counties, crops in the ground, and shed full of implements, which might easily last a couple of years. Many estates can be fully administered in a matter of nine to twelve months. The things that have an impact on the length of estate administration include the following, for example: the type and location of the property; the difficulty of liquidating the decedent's assets, if necessary; whether there are claims for unpaid debts; whether there are challenges to the will; and the level of cooperation of the executor and beneficiaries. Lastly, an Iowa estate cannot be officially closed by the court until the Iowa Department of Revenue issues a statement to the estate certifying that all taxes owed the State of Iowa have been paid, which depends upon the filing of the final fiduciary income tax return and the department's internal review process.