To liquidate an estate, one person, called the executor or administrator, gets legal authority from the probate court, inventories and values everything the deceased owned, notifies creditors and pays valid debts in the order state law requires, handles any tax filings, sells the assets that need to be sold, and distributes what remains to the beneficiaries. The whole arc usually takes six months to well over a year. Most of the work happens in a predictable sequence, and skipping steps, especially around debts and taxes, is where representatives get themselves into personal trouble.
Before starting, know that a large share of what someone owned at death may not be part of this process at all.
What Actually Goes Through Probate
The court process only reaches assets titled in the decedent’s name alone with no beneficiary designation. Several common asset types pass directly to whoever was named and never touch the estate:
- Life insurance proceeds go to the named beneficiary.
- IRAs, 401(k)s, and similar retirement accounts pass to their designated beneficiaries.
- Property held as joint tenants with right of survivorship belongs to the surviving co-owner automatically.
- Pay-on-death bank accounts and transfer-on-death investment accounts transfer on presentation of a death certificate.
- Assets held in a revocable living trust pass under the trust terms, handled by the successor trustee.
Everything else, including solely titled bank accounts, real estate in the decedent’s name, vehicles, personal property, and closely held business interests, flows through the probate process described below. The representative has no authority over the assets that bypass probate and shouldn’t try to collect them into the estate.
When You Can Skip Formal Probate
Every state offers a simplified procedure, often called a small estate affidavit, that lets heirs collect assets by sworn statement instead of opening a full case. Dollar thresholds range from as low as $10,000 to over $150,000 depending on the state, and many states exclude real estate from the shortcut entirely. Check your state’s probate code before assuming the full process applies.
Get Appointed and Open the Estate’s Accounts
The representative cannot touch a single asset until the probate court issues Letters Testamentary (when there’s a will) or Letters of Administration (when there isn’t). Getting those letters means filing the death certificate and any will with the probate court and attending a hearing where the court confirms the will’s validity and the representative’s qualifications.
Many states require the representative to post a surety bond before receiving authority, particularly when there is no will or the will does not waive the bond. The bond protects beneficiaries and creditors if the representative mismanages funds. Premiums usually run between 1% and 15% of the bond amount, are paid from the estate, and are not refundable.
The estate is its own tax entity, so the next step is applying for an Employer Identification Number from the IRS. You can apply online at IRS.gov/EIN and get the number immediately.1Internal Revenue Service. Instructions for Form SS-4 Enter the decedent’s name followed by “Estate” as the entity name, list the representative as the responsible party, check the “Estate” box, and use the date of death as the start date.
With the EIN in hand, open a dedicated estate checking account. The bank will want certified copies of the letters, the EIN, and a death certificate. Every dollar coming into or leaving the estate must run through this account. Mixing estate funds with personal money is one of the fastest ways to lose the court’s trust and create personal liability.
Inventory and Value Every Asset
The representative must identify everything the decedent owned and establish what each asset was worth. Gather deeds, bank and brokerage statements, insurance policies, vehicle titles, and business records. Check safe deposit boxes, review the last few years of tax returns to spot income sources, and open the mail for statements that reveal accounts you didn’t know about.
Most probate courts require a formal inventory filing within a few months of appointment. The exact deadline varies by state.
Values are set as of the date of death, not the date of sale. For publicly traded stocks and bonds, use the average of the highest and lowest selling prices on the date of death. Bank accounts are the balance on the date of death plus any accrued but unpaid interest. Real estate and valuable personal property such as art, jewelry, or collectibles need professional appraisals. The IRS requires a sworn appraisal for any single item or collection of similar items valued above $3,000.2Internal Revenue Service. Instructions for Form 706 Even below that, a qualified appraisal protects the representative if someone later argues an asset sold too cheap.
These date-of-death values do double duty: they set the estate’s tax basis in each asset for later sale, and they establish the numbers used for any estate tax return.
Notify Creditors and Pay Debts in the Right Order
Before any beneficiary receives anything, valid debts must be paid from estate assets.3Federal Trade Commission. Debts and Deceased Relatives Notice happens two ways. The representative publishes a notice in a local newspaper announcing the estate is open and setting a claim deadline, and sends direct written notice to every creditor they know about or can identify from the decedent’s records. The claim window generally runs two to four months after publication, and late claims are typically barred forever.
When the estate can pay everything, the order barely matters. When debts exceed assets, the estate is insolvent and the payment sequence becomes critical. State law sets a hierarchy that generally runs like this:
- Administrative costs: court fees, attorney fees, and representative compensation.
- Funeral and burial expenses, usually capped at a set dollar amount.
- Family allowances for the surviving spouse or minor children during probate.
- Federal debts, including taxes owed to the IRS.
- Last illness medical expenses.
- State and local taxes.
- All other debts, including credit cards and personal loans.
Creditors in the same tier share proportionally when the tier can’t be paid in full. Nothing in a lower tier gets paid until the tier above is satisfied. Pay a lower-priority creditor or distribute to beneficiaries before higher-priority claims are covered and the representative can become personally liable for the shortfall.3Federal Trade Commission. Debts and Deceased Relatives If the estate looks insolvent, talk to a probate attorney before writing any checks.
Handle the Tax Filings
Three different tax obligations may apply, and they get confused constantly.
Final Personal Income Tax Return
The representative files a final Form 1040 covering January 1 through the date of death. It’s due on the same schedule as any individual return, April 15 of the year following death for calendar-year filers.4Internal Revenue Service. Topic No. 301, When, How and Where to File Someone who died in March 2026 has a final return due April 15, 2027. State income tax returns follow their own rules.
Estate Income Tax
The estate itself can earn income while it’s being administered: interest, dividends, rental income, capital gains from asset sales. If that income reaches $600 or more in any tax year, the estate must file Form 1041.5Internal Revenue Service. Instructions for Form 1041 The estate pays tax on income it keeps and takes a deduction for income distributed to beneficiaries, who report their share on their own returns.
Federal Estate Tax
This is a tax on the estate’s total value rather than on income. For 2026, it applies only to estates exceeding $15,000,000 in combined gross assets and prior taxable gifts.6Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 The vast majority of estates fall well below that line. When Form 706 is required, it’s due within nine months of the date of death, and an automatic six-month extension is available by filing Form 4768.7Internal Revenue Service. Instructions for Form 706 Some states impose their own estate or inheritance taxes at lower thresholds, so check state rules even when federal tax doesn’t apply.
Sell What Needs to Be Sold
Once debts are known and tax obligations mapped, the representative can convert assets to cash. Method depends on what’s being sold.
Real estate typically sells through a listing agent. Minor repairs and cleaning are usually worth doing; major renovations tie up estate funds and rarely pay off. Closing proceeds go into the estate account. If the will directs a specific beneficiary to receive the property itself, it doesn’t need to be sold.
Household goods, furniture, and collectibles move through estate sales run by professional liquidators, live or online auctions, or direct sales through online marketplaces. Estate sale companies typically charge 20% to 40% of gross sales, covering sorting, pricing, staging, marketing, and running the sale. High-value pieces like fine art, jewelry, or rare collectibles often bring better results through specialized auction houses.
Bank accounts and brokerage accounts are the easiest part. Present the letters and a death certificate to each institution, and they’ll close the decedent’s accounts and transfer funds into the estate account. Investment holdings may need to be sold and trades settled before cash is available.
Stepped-Up Basis Can Erase Capital Gains
When someone dies, the tax basis of their capital assets resets to fair market value as of the date of death.8Office of the Law Revision Counsel. 26 USC 1014 Basis of Property Acquired From a Decedent If the decedent bought stock for $10,000 thirty years ago and it was worth $200,000 at death, the estate’s basis becomes $200,000. Sell for $200,000 and there’s no gain to tax. Sell for $205,000 and only $5,000 is taxable. The rule applies to real estate, stocks, and most other capital assets. Document every asset’s date-of-death value carefully, because that number is the new basis for anyone who inherits and later sells.
Final Accounting, Distribution, and Closing
With debts paid, taxes filed, and assets converted, the representative prepares a final accounting: every dollar that came in, every expense paid, and how the remaining balance will be divided. Many probate courts require this accounting before approving distributions.
If there’s a valid will, distributions follow it. Without a will, state intestacy law controls, generally putting a surviving spouse first, then children, then parents and siblings, with shares that vary by state.
As each beneficiary receives their share, collect a signed receipt and release confirming the distribution and releasing the representative from further claims tied to it. Once receipts are in hand and the court has reviewed the final accounting, the representative petitions to close the estate. The court’s discharge order formally ends the representative’s authority.
What It Costs
Every cost below comes out of estate assets before beneficiaries see anything.
Probate court filing fees vary widely by state, generally from a few hundred dollars to over $1,000, and some states scale the fee to estate value. Attorney fees may be hourly, flat, or a percentage of the estate depending on state rules and complexity.
The representative is entitled to compensation. Most states set this as a percentage of estate value, typically 2% to 5%, often on a sliding scale that shrinks as the estate grows. Other states leave it to the court to determine reasonable compensation based on the work involved. A will can also fix the amount and override the default.
Professional services add up: appraisal fees, estate sale commissions of 20% to 40%, real estate agent commissions, and accounting fees for tax preparation. Keep detailed records of every cost. The final accounting depends on them, and so does any defense against later claims of mismanagement.