Estate Accounts
When an individual dies, it may take months or years for that person’s heirs to sort out who gets what. In the meantime, while those details are being ironed out, an individual’s account is converted into what is known as an estate account. The term “estate” does not mean specifically real estate, but instead is a legal term for a deceased person’s assets. All investment and brokerage accounts of the deceased person will be closed and any powers of attorney will be cancelled.
Normally, with an estate account, a deceased person’s will and/or the court system overseeing the inheritance process will appoint an executor to manage that person’s account. In order to establish an estate account, the executor will need to provide the Federal Employer Identification Number (FEIN) and court documents that are no more than 60 days old naming them executor. This executor’s duties are to oversee the account for the benefit of (FBO) the eventual parties that will inherit the assets. The fact that the executor is overseeing the account for another party also makes the account a custodian account. Of course, the executor is often one of the future heirs as well, though he may not treat the account as his own and must make prudent investment decisions that benefit everyone involved.
Estate accounts are short-term accounts where assets can be parked until they are distributed according to the will and/or the probate court. Because the assets need to be kept in a safe account where they can be easily accessed, any investments need to be safe and liquid. For this reason, money market investments, such as T-bills, CDs, and other short-term debt securities are appropriate recommendations.
Creditors who feel they are owed money from the estate have six months to file a claim against the estate.
Taxation of an Estate Account
Annual income taxes. Any income earned from the estate assets that is not distributed to the beneficiaries, minus any brokerage com