To distribute inheritance money to beneficiaries, an executor or administrator collects the deceased’s assets, separates the ones that pass outside probate from those that don’t, pays off debts and taxes in the order state law requires, waits out the creditor claims period, and then transfers what remains according to the will, trust, or state intestacy law. Skipping steps or reordering them is how executors end up personally liable, so the sequence matters as much as the substance.
Get Legal Authority and Take Inventory
Nothing moves until the probate court formally appoints someone to act. If there’s a will, the court reviews it and issues letters testamentary to the named executor. If there’s no will, or the named executor can’t serve, the court appoints an administrator. Either role is a fiduciary one, meaning the estate’s and beneficiaries’ interests come ahead of the executor’s own.
With authority in hand, the first real work is figuring out what the deceased owned. That means tracking down bank accounts, investment portfolios, retirement plans, life insurance policies, real estate, vehicles, valuable personal property, and any debts owed to the deceased. Everything gets valued as of the date of death. Financial institutions can provide date-of-death balances. Real estate almost always needs a professional appraisal. Collectibles, jewelry, and other property of meaningful value may need an expert assessment.
Getting these numbers right isn’t just a paperwork exercise. When someone inherits an asset, their tax basis for calculating future capital gains is generally the fair market value on the date of death rather than what the deceased originally paid.1Internal Revenue Service. Gifts and Inheritances Stock a parent bought for $10,000 that was worth $200,000 at death has a stepped-up basis of $200,000, so a beneficiary who sells it at that price owes no capital gains tax. Accurate date-of-death values protect that benefit.
Separate Probate Assets From Everything Else
A significant portion of what the deceased owned may never touch probate. These assets transfer directly to a named beneficiary or co-owner, and the will cannot override them. If the will leaves everything to a daughter but the 401(k) still names an ex-spouse, the ex-spouse gets the 401(k).
- Retirement accounts (401(k)s, IRAs, 403(b)s, pensions) pass to whoever is named as beneficiary on the account.
- Life insurance proceeds go directly to the policy’s named beneficiary. They only enter probate when the estate itself is named as beneficiary.
- Bank accounts, brokerage accounts, and real estate held as joint tenants with right of survivorship pass automatically to the surviving owner.
- Payable-on-death and transfer-on-death accounts are claimed by presenting a death certificate to the institution. No court is involved.
- In states that allow them, transfer-on-death deeds move real estate outside probate the same way.
Once these are set aside, what’s left is the probate estate. That’s what the executor actually has authority over, and it’s the pool from which debts, taxes, and eventually the will’s or intestacy law’s distributions get paid. Who receives that remainder depends on the plan the deceased left behind. A valid will directs distribution through probate. A trust distributes according to its own terms, usually privately and without court involvement. With no plan at all, state intestacy law takes over, with a surviving spouse and children first in line, then parents, then siblings, then more distant relatives. Stepchildren and unmarried partners generally inherit nothing under intestacy unless they were legally adopted or named in a will.
Pay Debts and Taxes Before Anyone Inherits
No beneficiary sees a cent until the estate’s obligations are settled. An executor who pays beneficiaries first and finds out later the estate can’t cover its debts may be forced to make up the difference personally.
The Creditor Claims Window
The executor must notify known creditors and typically publishes a notice in a local newspaper to reach unknown ones. State law then gives creditors a window to file claims, commonly three to six months. Distributing assets before that window closes is one of the fastest routes to personal liability.
If the estate can’t cover all its debts, state law dictates the payment order. The exact hierarchy varies, but the pattern is consistent: administration costs and attorney fees, then funeral expenses, then family allowances, then federally prioritized debts like taxes, then medical bills from the final illness, then remaining state and federal taxes, and finally general unsecured debts. An executor who pays out of order can be forced to reimburse the estate from personal funds. Executor compensation, whether set by state statute or approved by the court as reasonable, is paid from estate assets before beneficiary distributions and is taxable income to the executor.
Final Income Tax and Estate Income Tax
The executor files the deceased’s final federal income tax return covering income from January 1 through the date of death.2Internal Revenue Service. Filing a Final Federal Tax Return for Someone Who Has Died If the estate earns income during administration, such as interest on bank accounts or rent from real estate, that goes on a separate estate income tax return on Form 1041.
Federal Estate Tax
For deaths in 2026, a federal estate tax return is required only if the gross estate exceeds $15,000,000.3Internal Revenue Service. Frequently Asked Questions on Estate Taxes That threshold was set by the One, Big, Beautiful Bill Act signed in July 2025, which amended the basic exclusion amount in the tax code.4Office of the Law Revision Counsel. 26 US Code 2010 – Unified Credit Against Estate Tax The great majority of estates fall well below that line. When a return is required, it’s due nine months after the date of death, though extensions are available.5Office of the Law Revision Counsel. 26 US Code 6075 – Time for Filing Estate and Gift Tax Returns
State Estate and Inheritance Taxes
The federal exemption doesn’t end the tax question. Roughly a dozen states impose their own estate or inheritance taxes with much lower thresholds. Oregon’s estate tax starts at $1,000,000, and several other states start between $2,000,000 and $5,500,000. A handful of states impose inheritance taxes, which are paid by the beneficiary rather than the estate and often depend on how closely the beneficiary was related to the deceased. Close family members generally face lower rates or full exemptions, while distant relatives and non-family beneficiaries pay more. An estate that owes nothing federally can still owe a real bill to the state.
What the Beneficiary Owes on Receipt
Money or property received as an inheritance is generally not taxable income on the beneficiary’s federal return. Tax consequences show up later if the beneficiary sells inherited property for more than its stepped-up basis, which produces a capital gain.1Internal Revenue Service. Gifts and Inheritances The main exception is inherited retirement accounts, where distributions are taxed as ordinary income (except for Roth accounts). Beneficiaries in states with an inheritance tax owe that state-level tax on their share.
Make the Distributions
Once debts and taxes are paid and the creditor claims period has expired, distribution can begin. Most courts require the executor to file a final accounting showing every dollar in, every dollar out, and what remains for the beneficiaries. The court and beneficiaries review it before distribution is approved.
The mechanics depend on the asset:
- Cash inheritances go out by check or electronic transfer.
- Real estate requires a new deed transferring ownership to the beneficiary.
- Vehicles need to be retitled at the DMV.
- Investment accounts can be transferred in kind, meaning the beneficiary receives the actual shares rather than cash proceeds from a sale.
Beneficiaries are typically asked to sign a receipt and release, acknowledging their share was received and releasing the executor from further claims related to the administration. That document is worth insisting on: it’s the executor’s primary protection against a beneficiary who later argues something was mishandled.
Inherited Retirement Accounts
Retirement accounts pass outside probate, but the beneficiary still faces distribution rules with real tax consequences. A surviving spouse has the most flexibility and can roll an inherited IRA or 401(k) into their own retirement account. Non-spouse beneficiaries of account holders who died in 2020 or later generally must empty the account within 10 years of the account holder’s death. Each withdrawal from a traditional IRA or 401(k) is taxed as ordinary income, so spreading withdrawals across the full window can soften the tax hit. A narrow group of “eligible designated beneficiaries” can stretch distributions over their life expectancy instead: minor children of the deceased (until they reach majority), disabled or chronically ill individuals, and beneficiaries no more than 10 years younger than the account holder.6Internal Revenue Service. Retirement Topics – Beneficiary
Small Estate Shortcuts
Not every estate needs full probate. Every state offers some form of simplified procedure for smaller estates, and for modest amounts they can save thousands of dollars and months of waiting.
A small estate affidavit lets a beneficiary claim assets without formal probate at all. The beneficiary signs a sworn statement asserting the right to the property, has it notarized, and presents it with a death certificate to whoever holds the asset. The bank or brokerage releases the funds directly. The process usually covers personal property and financial accounts but not real estate. Most states impose a waiting period of around 30 days after death before the affidavit can be used, and it’s not available once a formal probate has been opened.
Dollar limits vary widely by state, ranging from around $10,000 to $275,000, with most states falling between $50,000 and $100,000. Checking the state’s threshold before assuming full probate is required can be the difference between a two-week process and a two-year one.
When Beneficiaries Push Back
Disputes can stall distribution for months or years and drain estate assets in legal fees. The most common form is a will contest, in which an interested party asks the court to invalidate all or part of the will. Courts don’t grant these easily. A challenger generally has to prove one of a few specific things: the deceased lacked mental capacity when signing the will, someone exerted undue influence, the will was forged or procured through fraud, or the document failed to meet the state’s formal requirements (such as proper witnessing).
Not every dispute targets the will itself. Beneficiaries who believe an executor is mismanaging the estate, playing favorites, or using estate funds personally can petition the court to remove the executor. Courts do replace executors who fail to follow court orders, misuse assets, or put their own interests ahead of the estate’s. If the executor’s breach caused financial harm, they can be ordered to reimburse the estate personally. Meticulous record-keeping and steady communication with beneficiaries head off most conflicts before they reach litigation.
How Long the Whole Process Takes
A straightforward estate with no disputes, limited debts, and cooperative beneficiaries might wrap up in four to six months. A typical probate case runs closer to one to two years. Estates involving business interests, real estate in multiple states, tax disputes, or will contests can drag on considerably longer. The creditor claims period alone accounts for several months. Beneficiaries expecting a quick payout are often surprised by how long it actually takes, and executors who rush distribution to keep the peace are the ones most likely to end up personally on the hook.