Asset marshaling is a critical component of the probate process in which an estate’s executor or administrator identifies the decedent’s assets, has them appraised, and pays off their outstanding debts and obligations.
- Marshaling is a by which a decedent’s assets are identified, appraised, and used to pay off their outstanding debts, tax liabilities, and other obligations.
- Only assets that are part of one’s probate estate need to be marshaled.
- Improper or incomplete asset marshaling can result in numerous negative consequences to the beneficiaries and expose the executor to liability for claims of breaching their fiduciary duties.
What assets need to be marshaled?
When one dies, their assets can be divided into two general categories:
- Probate assets, which are assets solely owned by the decedent at the time of their death with no designated beneficiary, become part of their probate estate, and
- Non-probate assets, which include join t tenacities with rights of survivorship, inter vivos trusts, and designated beneficiary transfers such as life insurance policies, POD and TOD accounts, and other assets that transfer outside of probate immediately upon one’s death.
Because marshaling concerns one’s probate estate, non-probate assets need not be marshaled.
How does marshaling work?
While state laws differ as to the details, broadly speaking, marshaling consists of the following three steps.
- Asset Identification: Identifying and gathering the decedent’s probate assets, such as bank deposits, investment accounts, real estate, vehicles, and other personal property, and transferring the funds, titles, and deeds to the estate.
- Asset Evaluation: After identifying the assets, they must be accurately valued and appraised. While this is relatively simple in the case of bank deposits, investment accounts, and other items with readily apparent values, it can be much more time-consuming and expensive in the case of where artwork, jewelry, rights to intellectual property, and other forms of unique and non-fungible property..
- Debt Settlement and Tax Payments: This step includes identifying the decedent’s debts and tax liabilities and publishing a public notice so potential claimants can bring their claims against the estate. After this is done, the debts, claims, and tax obligations must be settled or paid. Finally, any taxes, fees, costs, or expenses associated with the probate proceedings must be paid before the beneficiaries can receive anything from the remainder of the estate.
The ramifications of improperly marshaling assets
Improperly marshaled assets can have many negative consequences, for example:
- Assets not identified and made part of the estate can result in the beneficiaries not receiving what you intended, leading to potential disputes.
- Assets that are incorrectly valued or appraised can lead to the overpayment or underpayment of taxes, the latter of which can result in the IRS pursuing the beneficiaries for the tax deficiencies.
- If the executor fails to properly notify creditors or pay the estate's debts and expenses, the estate could still be liable for them. If this happens, the beneficiaries might have to return distributions they already received to satisfy those obligations.
- Due to the fiduciary duties of executors, in the event of any of these negative consequences, they can be personally liable for any resulting claims.