What Are Letters of Office for Estate Planning?

Updated

If you have not prepared beforehand, managing the estate of a deceased loved one can seem intimidating. In fact, you may see the hoops you have to jump through just to gain the level of authority required to even sign off a document.

Jump ahead to these sections:

Your loved one’s estate owns the assets and pays the liabilities for any debt they incurred over their lifetime. For example, if you own your home, your estate becomes the owner of the home after your death. Your estate also pays any mortgage on your home after your death.

As the estate is newly formed, there is an issue as to who can act for the estate. Who decides what happens to your home and mortgage after your death? Should your home be sold and, if so, on what terms? Should your mortgage be refinanced?

Letters of office play a critical role in answering these questions.

Definition of Letters of Office

While they may sound like it, letters of office are not something you mail at the post office. Letters of office are documents that establish authority to make estate decisions. In simple terms, legal entities need individuals to act for them. Third parties require some evidence to know who they can rely upon to take action on behalf of the legal entity. They want to know who has authority to act for the legal entity.

Letters of office serve as the “sign off” function, giving a person authority. Additionally, letters of office give third parties confidence about who is the right person to act for the estate.

What’s the Difference Between Letters Testamentary and Letters of Administration?

When it comes to these types of documents, there are two versions for letters of office. They are known as “letters testamentary” and “letters of administration.”

Letters testamentary

Letters testamentary are letters of office when a will designates a person to act for an estate. Such a person under letters testamentary is known as an executor.

The majority of the time, an executor handles any beneficiary issues under the written guidance of a will. Having a will designating an executor also helps you address any future issues regarding the distribution and use of your assets. This responsibility is not something that you can push along to just anyone. You may want to ask yourself ahead of time who should be the executor and manage your estate after your death?

The executor can be a single person or multiple persons, known as co-executors. An executor can also be an individual or an entity, if the entity is legally qualified to be an Executor in the applicable state of residence for the decedent. Additionally, the executor can be, but need not be, a beneficiary of the estate.

It is also helpful to name one or more successor executors in the event that the designated primary executor cannot serve.

The executor should have some knowledge regarding the assets and liabilities of the estate. It is also worth noting that an executor does not need to be as financially experienced as Warren Buffett. However, the more an executor understands estate assets and liabilities, the more likely they can do a better job.

Letters of administration

Letters of administration are letters of office when there is no will that authorizes a person to act for an estate. Such a person under letters of administration is known as an administrator.

Most states have a priority system to determine who should be the administrator through next of kin designation. A common order of priority would be:

  1. Surviving spouse
  2. Children
  3. Grandchildren
  4. Parents
  5. Siblings 
  6. Next closest relative
  7. Creditor of the decedent
  8. A government official

There also may be age, citizenship, residency, capacity, and other (such as not being a convicted felon) requirements to serve as an administrator. 

It is important to remember that your state’s priority system may not select the person you want to manage your estate. What if your surviving spouse is not the person you would choose to act for your estate? The answer is to avoid your state’s priority system by executing a will and designating an executor of your choice.

When Do You Need Letters of Office?

You need letters of office when necessary to establish the authority of the executor or administrator to act for the estate. Among the situations when letters of office are necessary are:

  • Selling, purchasing, and/or leasing real estate
  • Refinancing the mortgage on real estate
  • Opening an investment account
  • Selling and/or purchasing investments
  • Opening a bank account
  • Selling an automobile
  • Operating a business 
  • Executing or extending a contract 
  • Commencing or continuing litigation
  • Other estate matters, including for certain tax return purposes.

If a third party asks to see evidence that the executor or administrator has authority to act for the estate, you need to get letters of office. A title company in a real estate transaction needs to see letters of office for an estate seller.

For example, suppose there is a disagreement between two children concerning the sale of a deceased parent’s home. David wants to sell the property, but Diana wants to continue to hold the property.  How should a potential purchaser determine who has authority over the real estate?

If David (and not Diana) is the executor, David can deliver letters of office to a third-party purchaser. In this case, David establishes his authority to act for the estate and sell the real estate, notwithstanding the objection of Diana.

Who’s Responsible for Obtaining Letters of Office?

The executor or administrator of the estate is responsible for obtaining letters of office to carry on the business of the estate. Both have the option to request that an attorney representing the estate obtain the letters of office.

Do You Have to Pay for Letters of Office?

Letters of office are not free. You do have to pay for letters of office. The specific cost of letters of office varies from county to county, but it usually is not significant. For example, in Cook County, Illinois (which includes Chicago), the cost of letters of office is $4 each.

How Do You Get Letters of Office?

You obtain letters of office as part of the probate process. Probate is a judicial process where a court supervises the administration of a deceased person’s estate.

The executor or administrator is responsible to “open” the estate as part of probate. The executor or administrator does so by appearing in the applicable probate court. It is helpful to think of “opening” an estate in probate court as equivalent to filing a complaint in litigation.

A court hearing takes place at the beginning of the probate process. It is held before the judge supervising the administration of the estate. At this hearing, the judge approves the selection of the executor or administrator for the estate. Even a person named as the executor in a will is not officially the executor until this designation is approved by the judge in the probate case.

Once the probate estate has been “opened” and the executor or administrator has been approved by the probate judge, you can get letters of office. The probate court clerk typically issues letters of office. Letters of office usually are certified by said clerk, often by an embossed seal.

Letters of office commonly include the following information:

  • The name of the probate court
  • The probate case number
  • The name of the deceased person
  • The date of death of the deceased person
  • The name of the executor or administrator;
  • Form language describing the authority of the executor or administrator
  • The date of issuance of the letters of office.  

The probate court clerk issues one original certified letters of office to the executor or administrator. If necessary, additional copies of letters of office can be subsequently obtained from the probate court clerk.

What Happens After You Obtain Letters of Office?

With letters of office obtained, the executor or administrator can conduct the business of the estate. The executor or administrator can proceed with the estate transactions described above.

Letters of office are relevant for assets and liabilities subject to the probate process in the estate of a deceased person. However, certain assets and liabilities that are affected by a person’s death are not subject to letters of office.

These include the following:

Assets and liabilities of a trust

Trusts are administered by trustees and are not part of the probate process. Letters of office do not apply to trusts. The trust agreement for the trust governs trust assets and liabilities.

Assets and liabilities of a “small estate”

Certain estates are not considered large enough to be part of the probate process. The amount of a “small estate” varies by state. For example, in California, a “small estate” has a value of no larger than $166,250. Letters of office do not apply to “small estates.” A “small estate” affidavit document governs “small estate” assets and liabilities.

The Importance of Letters of Office in Estate Planning 

The goal in estate planning is to transfer assets to your intended beneficiaries at minimum cost. Among the costs that estate planners seek to minimize concern uncertainty. Uncertainty leads to inefficiency and litigation costs.

Letters of office provide valuable clarity by defining who has the authority to act for an estate. Without letters of office, inefficiency and litigation costs would increase. No one would know with confidence how to deal with an estate. By minimizing uncertainty after death, letters of office play an important role in estate planning.

Categories:

Icons sourced from FlatIcon.