Paying the Internal Revenue Service

• Any taxes that the deceased or her estate owes are priority claims against her assets during probate. The estate's executor will usually pay the IRS before anyone else, to ensure that he has enough money in the estate to do so. He'll have to file personal income tax returns for the deceased, and if the estate earns any interest on investments during the probate period, the executor must file an estate income tax return as well. If the estate has a value of $5 million or more as of 2011, a federal estate tax return must be prepared and taxes paid as well. Some states also charge estate taxes on the value of the estate. After he has filed all returns and paid all taxes, the executor must generally wait for a closing letter from the IRS, if an estate tax return had to be filed, before he can close the estate .
  
  

Satisfying Creditors

• States have various time limits for creditors to collect what the deceased owed them. In the earliest days of probate, the executor will notify them that their debtor has passed away. They might have up to nine months or a year to present a final billing to the executor of the estate. The executor will generally take care of the tax situation during this time, then decide whether to pay the creditor claims as they come in. She can reject them if they're not valid, or if the estate simply lacks the funds to pay all of them. If there's insufficient cash in the estate, she might have to liquidate assets to pay as many creditors as possible. She can't close the estate until the creditor deadline has expired and they either receive payment or she rejects their claims. If a creditor contests her decision, the probate court must uphold or overrule the rejection.
  
  

Final Accounting

• After paying taxes and creditors, the executor must give a full accounting to the court, detailing everything she did. She'll have to provide proof of all money that came into the estate, either through interest on investments or sale of assets, as well as proof of everything she paid out. A judge will review the report, then set a date for a final hearing to approve it. Beneficiaries usually receive a report of the final accounting as well. They can contest it if they feel that something is amiss, or they can sign waivers to accept it.
  
  

Distribution of Remaining Assets

• After the probate court has approved the final accounting, or the beneficiaries have signed waivers approving it, the executor can make the bequests in the will and give them whatever property and money they've inherited. If there was not enough money in the estate, even after selling assets, to pay all creditors, they might not get anything. They might get less than they were promised if money ran short. Once the IRS issues a closing letter, if one is necessary, the judge will allow closure of the estate.