Making Distributions

Allocating estate proceeds to heirs

A distribution is the delivery of cash or an asset to a given heir. After resolving debts and paying any taxes due, the executor should distribute the remaining estate to the heirs in accordance with the instructions in the will (or as dictated by the court).

General Plan

Before making any distributions, it's best to come up with an overall estate settlement plan: how you plan to resolve debts, which assets you plan to sell, which assets you plan to distribute directly, which heirs will get what, etc.

Your goal is to resolve all debts and to allocate 100% of the remaining value of the estate, with each heir scheduled to receive the proper items and the correct overall share of the estate. It's usually easiest to try to do things in this order:

  1. Handle Named Beneficiaries — Define distributions for assets over which you have no control (i.e., 401Ks, life insurance policies, etc.)
  2. Account for Family Entitlements — Define distributions for any Family Entitlements that will be utilized
  3. Allocate Bequests — Define distributions for any specific bequests made in the will
  4. Prepare for Debt Resolution — Ensure you will have enough cash to resolve the debts, planning to sell assets if necessary
  5. Mark Assets for Sale or Distribution — Plan remainder of asset disposition
  6. Allocate Distributions — Define distributions so that each heir will get the proper share of the final estate

If the estate will not have enough free cash to resolve all debts, even after liquidating all available assets in step 5, you may need to revisit some of the earlier steps in an attempt to satisfy estate creditors, since debts generally have precedence over other estate claims (see Insolvent Estates).

EstateExec makes the overall planning process easier by allowing you to mark whether you plan to sell or distribute each asset (see Reference: Asset Planning), and to define desired distributions to each heir (see Reference: Manage Distributions). You can then see at a glance which assets and heirs need more attention, and the Overview tab will show you overall estate progress.

Named Beneficiaries

Certain items are not passed through a will, such as life insurance, property held in joint tenancy or community property with the right of survivorship, funds in an IRA or 401K for which a beneficiary was named, stocks held in a transfer-on-death account, and so forth. You can choose to list these items as assets to help you keep things organized, but remember to create a Distribution for each with the "Reason" identified as "Beneficiary".

Family Entitlements

California allows a surviving spouse and children to claim certain entitlements that supersede most other estate claims, in the following cumulative order:

Personal Property Exemption

A surviving spouse or any minor children of the decedent may petition the court for personal property up to:

  • $3,325 in one motor vehicle
  • $8,725 in jewelry
  • $8,725 personal property used in a business or trade
  • $3,500 in material to maintain or repair the residence

See CA Prob Code § 6510 and EJ-156 (current exempt property limits).

Homestead Exemption

A surviving spouse or any minor children of the decedent may petition the court to remain in the home, even if the home was intended to be given to someone else. If granted, the exemption typically also covers the basic personal property in the home, such as furniture and appliances.

A probate homestead grant is not automatic: any mortgage still applies, and the court will consider the needs of the surviving spouse and minor children, the liens and encumbrances on the property, the claims of creditors, the needs of the heirs of the decedent, and the intent of the decedent with respect to the property.

It is also not forever. The exemption should be for a limited time, and cannot exceed the lifetime of the surviving spouse, or the passing into adulthood of any minor children (whichever comes later).

See CA Prob Code §§ 6520-28.

Family Allowance

A surviving spouse and any minor children are entitled to a reasonable family allowance out of the estate to maintain their current standard of living during the administration of the estate. If the estate is insolvent (i.e., cannot pay all its debts), then the allowance terminates after at most one year.

See CA Prob Code §§ 6540-45.

Surviving Spouse Elective Share

Since people commonly ask, note that CA has no notion of a surviving spouse elective share (since the state is already a community property state).

Specific Bequests

Note that wills sometimes specify that certain assets or dollar amounts are to be distributed to certain heirs. You can mark these bequests via the Distribution dialog (see Manage Distributions). However, not all such bequests can be honored: sometimes the asset is no longer part of the estate; sometimes the bequest conflicts with local law (e.g., community property); sometimes the asset must be sold (as a last resort) in order to pay estate debts.

Heir Estate Percentages

The will usually specifies the percentage of the net estate that each heir should receive. For example, if the will says that Sally should get 40% of the estate, and the estate is worth $200K, then Sally is be entitled to $80K worth of assets and cash, and all of the defined distributions for Sally should add up to $80K.

Tip: You can enter these target percentages on the EstateExec Heirs tab, and as you define distributions, see how you you are doing in reaching these targets in the Heir Target Allocation chart on the Overview tab (for additional tips, see EstateExec Reference: Manage Distributions).

Charitable Donations

A charitable donation is really just an estate distribution to a particular type of heir (a charity). The executor does not have the right to give away items of value to charities unless specifically authorized by the will or the court.

Distribution Completion and Receipts

Actually making distributions to heirs is usually one of the last things the executor does in settling the estate. Although it is best practice to make all the distributions at the end of the process, it is usually permissible to make some distributions earlier if desired (be especially careful of restrictions if the estate is going through probate). Once you have actually made a given distribution, you should mark it Done.

It is good practice to require all heirs to sign a receipt for any distributions (the receipt can cover multiple items). When making final distributions to an heir, it is also good practice to have that person sign a document (perhaps prepared by an attorney), stating that he or she approves of your actions as executor and confirms that he or she has received everything due.

Discount $$:  EstateExec users can access significant discounts on third-party shipping services (see Task: Make all distributions).

See also EstateExec Reference: Manage Distributions for specifics about using EstateExec to organize, plan, and document distributions that satisfy the directives of the will (and/or the court).

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