The Ins and Outs of Closing Estates in New York

The Difference Between Informal and Formal Closure

If you have ever served as an Executor or Administrator of an estate, then you know at the end of the process that you need to take steps to close the estate.  What is the difference between an Executor and an Administrator, and what does it mean to close an estate? 

Executor vs. Administrator – what is the difference? 

An estate can either go through a probate proceeding or an intestate administration proceeding, depending on the circumstances of the case. A probate proceeding occurs when the decedent had a Last Will and Testament (“a Will”).  An intestate administration occurs when the decedent died without a Will.  In a probate proceeding, the Will is proven to be valid and the Court issues Letters Testamentary to the Executor – appointing them to the position of Executor.  In an intestate administration proceeding, there is no Will to prove valid and the Court issues Letters of Administration to the Administrator – appointing them to the position of Administrator.  Whether you are an Executor or Administrator, at the end of the process, you will need to close the estate. 

What are the different types of estate closure?

Estates can be closed informally or formally.  Both types of closures are described below.   

What is an informal closure of an estate? 

With the informal closure of an estate, the Executor or Administrator (“the Estate Fiduciary”) will typically circulate to the residuary beneficiaries an informal accounting.  There is no required format for an informal accounting.  In my practice, I will sometimes do what I call a “checkbook accounting”, which essentially shares all the information in the estate checkbook with the beneficiaries and has annotations to explain the details.  For example, I would explain the source of all deposits (i.e., proceeds deposited on sale of decedent’s house) and the reasons for all payments or withdrawals (i.e., a check written to pay the decedent’s medical bills).  If the beneficiaries have questions about the informal accounting, then the lawyer preparing it typically will answer them and provide whatever additional information is relevant. If the informal accounting is acceptable to the beneficiaries, then the lawyer will ask the beneficiaries to sign Receipts and Releases.

What is a Receipt and Release?

A Receipt and Release is a form signed by the beneficiary stating what assets they have received from the estate, such as a monetary bequest or items of tangible personal property.  For example, the Receipt and Release may state that the beneficiary received $10,000.00 and a Ford truck valued at $20,000.00.  The Receipt and Release further states that the beneficiary releases the Estate Fiduciary from any further liability to them under the estate proceeding.  In addition to Receipts and Releases from all beneficiaries, the Estate Fiduciary must also file an Affidavit by Fiduciary to informally close the estate.

What is an Affidavit by Fiduciary?

An Affidavit by Fiduciary is exactly what it says – an Affidavit signed by the Estate Fiduciary regarding the administration of the estate.  It includes various information, including confirmation that all taxes are paid, and all claims are settled.  It also states that all the necessary Receipts and Releases signed by the beneficiaries are being filed.  If the Court finds everything in order, it will typically issue an Order Approving Informal Closing within approximately a week’s time. 

When is informal closure appropriate? 

Informal closure is appropriate when there are no disputes among the beneficiaries and there are no beneficiaries who are under a legal disability, such as people who are incapacitated, mentally disabled, or who are minors. Informal closures are by far the most common way to close an estate and are certainly preferable in terms of time and expense.

What is formal closure of an estate? 

A formal closure occurs when a petition is filed by the Estate Fiduciary to have the court approve a formal accounting.  The formal accounting has a required format with multiple schedules.  It describes the financial activity of the estate in great detail from the decedent’s date of death to the proposed date of closure.  It would include a proposed final distribution of the remaining assets to the beneficiaries.

When is formal closure of an estate appropriate?

Formal closure is appropriate when one or more of the beneficiaries are persons under disability.  It is also appropriate if one or more of the beneficiaries who are capable of signing a Receipt and Release refuse to do so.  This can happen when one or more of the beneficiaries believe the Estate Fiduciary did not handle their responsibilities appropriately. 

What happens after the Estate Fiduciary files a formal accounting?

All the beneficiaries who have not signed a Receipt and Release and all the persons under disability will be served with the formal accounting and there will be a return date in court for all necessary parties to be heard.  If there are persons under disability, the court will likely appoint a Guardian ad Litem to represent their interests. 

What is a Guardian ad Litem? 

A Guardian ad Litem is an attorney appointed by the court to protect the interests of a person under disability. The Guardian ad Litem will review the formal accounting and report to the court whether they find it acceptable on behalf of their client.

What happens if beneficiaries do not accept the formal accounting?

In that case, those beneficiaries can file objections to the accounting and the Court may hold a trial concerning those objections.  It is common that such matters are settled before trial, but if they are not, the court will hold a trial and determine whether to approve the accounting.  If the Court believes the Estate Fiduciary acted improperly, it has the ability to surcharge the Estate Fiduciary.  A surcharge essentially forces the Estate Fiduciary to pay back money to the estate because they did not handle their responsibilities appropriately.

Estate closure, be it informal or formal, must be handled with care in order to ensure that the Estate Fiduciary properly fulfills their duties, and the beneficiaries all receive what they are due.  In order to make sure estate closure is handled appropriately, you should consult with an experienced attorney familiar with estate administration matters. 

Matthew J. Dorsey, Esq. is a Shareholder with O’Connell and Aronowitz, 1 Court Street, Saratoga Springs, NY. Over his twenty-seven years of practice, he has focused in the areas of elder law, estate planning, and estate administration. Mr. Dorsey can be reached at (518)584-5205, mdorsey@oalaw.com and www.oalaw.com.