Making Distributions for Texas Probate

One of your primary duties as the estate executor is to distribute cash or assets to heirs according to the instructions in the will.

Making distributions is done after estate debts are resolved, and any taxes due are paid.

Before you make any distributions to heirs, write out an overall estate settlement plan that details how you will resolve debts, which assets you’ll sell, which assets will be distributed directly, which heirs will receive which assets, etc.

Your goal is to pay all debts and taxes, then distribute 100% of the estate's remaining value, with each heir receiving their correct share. Many executors have found it easiest to use this order:

• Step 1: Identify assets with named beneficiaries: define the distribution of assets you have no control over because beneficiaries have been assigned (i.e., life insurance policies, 401Ks, etc.).
  
  
• Step 2: Account for family entitlements
  
  
• Step 3: Allocate bequests
  
  
• Step 4: Prepare for debt resolution: make sure you have enough cash to resolve debts. Make plans to sell assets, if necessary.
  
  
• Step 5: Mark assets for sale or distribution
  
  
• Step 6: Allocate distributions

If the estate does not have the cash to resolve all debts, even after liquidating all available assets in Step 5, review earlier steps in an attempt to satisfy estate creditors since debts generally have precedence over other estate claims.

State law determines which debts have priority over other debts. Some debts (i.e., funeral and burial expenses) often have priority over family entitlements, which is especially relevant for an estate that can’t pay its creditors.

Named Beneficiaries

Certain items that have named beneficiaries don’t pass through a will, including life insurance, property held in joint tenancy, community property with the right of survivorship, funds in an IRA or 401K, stocks held in a transfer-on-death account, etc.

Family Entitlements

Many states offer optional entitlements to a surviving spouse and/or children. These entitlements usually have precedence over debt claims, except funeral and estate administration expenses. Family entitlements even come before distributions named in the will.

Typical entitlements include personal property exemptions, a homestead, a family allowance, and sometimes a surviving spouse elective share.

Specific Bequests

The decedent’s will may specify that certain assets or dollar amounts be distributed to certain heirs. These bequests are usually attended to before dealing with the residuary estate, in which percentages of the remaining estate are allocated to the appropriate heirs.

However, not all bequests can be honored – the asset may no longer be part of the estate, the bequest may conflict with local law, or the asset may need to be sold to pay estate debts.

The process of reducing bequests is known as “abatement,” and any required reductions are typically made proportionally to the recipients.

Residuary Percentages

As is usually specified in the will, each heir should receive a percentage of the residuary estate after all debts and obligations have been satisfied and any bequests have been handled. For example, if the will states that Jean should receive 40% of the residuary estate and the estate is valued at $300,000, Jean is entitled to $120,00 worth of assets and cash, and all of the defined distributions to Jean should add up to $120,000.

Debts of Heirs

In some cases, a decedent may pass away with an heir(s) owing them money. As the estate’s executor, you don’t have the legal authority to simply forgive these debts. The heir to whom the money was lent can either directly repay the estate the amount owed, the loan amount can be distributed as an asset to another heir, or a portion of the inheritance that heir would have received may be withheld.

For example, if Martha owed the decedent $10,000 when they died, and Martha is entitled to $50,000 in distributions from the estate, you can distribute the difference of $40,000 to Martha and mark the $10,000 debt as being repaid.

Charitable Donations

As executor, you don’t have the legal right to give items of value to any charity unless authorized by the will or the court.

Require Receipts from Heirs

It is an excellent practice to require all heirs to sign a receipt for any distribution they receive. When making final distributions, it’s also wise to have that person sign a document (preferably prepared by an attorney) stating that they approve of your actions as executor and confirm that they have received everything due them.

Questions Concerning Probate and Real Estate?

Certain aspects of settling an estate, like handling an estate’s real estate holdings, may be outside your area of expertise or comfort zone. If in doubt, work with a professional.

If you have questions concerning probate and real estate in Tarrant, Parker, Wise, Collin, Denton, or Dallas County, contact David Pannell and Cities Real Estate. David has extensive experience helping families with their real estate needs before, during, and after the probate process.

David has been an agent/realtor since 2005. He has served as a United States Marines, City of Arlington police officer, and is a dedicated family man. You can trust him to put your interests first in any and all situations.

Call David today at (817) 797-9047 for help with your real estate and probate needs. You will be treated respectfully, and your requirements will be met efficiently and confidentially.