To liquidate an estate, you get legal authority from the probate court as executor or administrator, open an estate bank account, inventory and value every asset as of the date of death, notify creditors and pay valid claims in the order state law requires, file the tax returns the estate owes, sell what has to be sold, and distribute the remainder to beneficiaries before asking the court to close the case. The sections below walk through how to liquidate an estate in that order, with the dollar figures, deadlines, and warning points at each step.
Know Which Assets You Actually Control
A significant portion of most estates passes directly to named beneficiaries or co-owners and never touches probate. The representative has no authority over those assets, and trying to claim them creates delays. Life insurance proceeds go to the named beneficiary. IRAs, 401(k)s, and similar retirement accounts with a designated beneficiary pass directly to that person. Property titled as joint tenants with right of survivorship belongs automatically to the surviving co-owner. Bank accounts with pay-on-death designations and investment accounts with transfer-on-death designations move to the named person on presentation of a death certificate. Property held in a revocable living trust is handled by the successor trustee under the trust terms.
What you do control is everything else: individually titled bank accounts without a beneficiary, real estate in the decedent’s name alone, vehicles, personal belongings, and business interests. That is the pool you are liquidating.
Check Whether You Can Skip Full Probate
If the probate assets fall below a state threshold, you can often avoid formal probate entirely. Every state offers some form of simplified procedure, commonly called a small estate affidavit, that lets heirs collect assets by filing a sworn statement. Thresholds range from as low as $10,000 in some states to over $150,000 in others, and many states exclude real estate from the shortcut. Confirm your state’s limit before starting the full process below.
Get Appointed and Open the Estate’s Accounts
One person drives the entire liquidation. If there is a will, it names an executor; without a will, the probate court appoints an administrator. Either way, the representative owes a fiduciary duty to beneficiaries and creditors, which means every decision must serve their interests rather than your own.
You cannot touch an asset until the court issues paperwork proving your authority: Letters Testamentary when there is a will, Letters of Administration when there is not. Getting those letters requires filing the death certificate and the will with the probate court and attending a hearing where the court confirms the document’s validity and your qualifications. Many states require you to post a surety bond before receiving authority, especially when there is no will or the will does not waive the bond. The premium typically runs between 1% and 15% of the bond amount, is paid from the estate, and is not refundable.
Next, get an Employer Identification Number from the IRS. An estate is its own tax entity, separate from the deceased, and needs its own tax ID for filing returns and opening accounts. You can apply online at IRS.gov/EIN and receive the number immediately.1Internal Revenue Service. Instructions for Form SS-4 On the application, use the decedent’s name followed by “Estate” as the entity name, list yourself as the responsible party, select “Estate” as the entity type, and enter the date of death as the start date.
With the EIN, open a dedicated estate checking account. The bank will want certified copies of your letters, the EIN, and a death certificate. Every dollar in or out of the estate runs through this account. Commingling estate funds with personal money is one of the fastest ways to create liability and lose the court’s trust.
Inventory and Value Everything
Identify every asset and establish its value. Start with the paperwork: deeds, bank statements, brokerage records, insurance policies, vehicle titles, business ownership documents. Check safe deposit boxes. Pull the last few years of tax returns to catch income sources you might otherwise miss. Watch the mail for statements that reveal accounts you did not know about.
Most probate courts require a formal inventory filing within a few months of your appointment. Deadlines vary, but waiting too long invites scrutiny and slows the whole case.
Date-of-Death Valuation
Each asset is valued as of the date the person died, not the date you eventually sell it.2Internal Revenue Service. Instructions for Form 706 For publicly traded stocks and bonds, the value is the average of the highest and lowest selling prices on the date of death. If no trades happened that day, average the mean prices from the nearest trading days before and after, prorated to the date of death. Bank accounts are the balance on the date of death plus 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 where the IRS does not require it, a qualified appraisal protects you from later disputes about whether an asset sold for too little.
Notify Creditors and Pay Debts in the Right Order
Before any beneficiary sees a dollar, the estate must settle its debts, and the representative is responsible for notifying creditors and paying valid claims from estate assets.3Federal Trade Commission. Debts and Deceased Relatives Notice takes two forms. Publish a notice in a local newspaper alerting potential creditors that the estate is open and setting a claim deadline. Send direct written notice to every creditor you know about or can reasonably identify from the decedent’s records. The filing window generally runs two to four months after publication, and claims filed after the deadline are typically barred.
Priority of Claims
When assets cover everything, order barely matters. When the estate is insolvent, order is everything. State law sets a priority hierarchy that generally follows this pattern:
- Administrative costs: court fees, attorney fees, 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 expenses from the decedent’s final sickness or hospital stay.
- State and local taxes.
- All other debts, including credit cards, personal loans, and remaining medical bills.
Creditors in the same tier share proportionally if there is not enough to pay them all. No one in a lower tier gets paid until the tier above is fully satisfied. This is where representatives get into real trouble: if you pay a lower-priority creditor or distribute to beneficiaries before higher-priority claims are settled, you 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 a single check.
Handle the Tax Filings
Three different tax obligations may apply, and they are easy to confuse.
The Decedent’s Final Income Tax Return
File a final federal income tax return (Form 1040) covering January 1 through the date of death. The deadline is the same 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 A person who died in March 2026 has a final return due April 15, 2027. State income tax returns follow the same pattern.
Estate Income Tax (Form 1041)
Assets keep earning interest, dividends, rental income, or capital gains during administration. If estate income reaches $600 or more in any tax year, the estate must file its own income tax return on Form 1041.5Internal Revenue Service. Instructions for Form 1041 The estate pays tax on income it keeps and passes a deduction through for income distributed to beneficiaries, who then report that income on their own returns.
Federal Estate Tax (Form 706)
The federal estate tax is a tax on the value of the estate itself, not 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 That threshold excludes the vast majority of estates. When Form 706 is required, it must be filed within nine months of the date of death, though 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 your state’s rules even if the federal tax does not apply.
Convert the Assets to Cash
With debts identified, claims resolved, and tax obligations mapped, you can start turning assets into money. How you sell depends on what you are selling.
Real Estate
Listing with a real estate agent is the most common approach. Minor repairs and cleaning can help the property sell faster and at a better price, but avoid major renovations that tie up estate funds. Handle the closing, then deposit the proceeds into the estate account. If the will directs that a specific beneficiary receive the property rather than cash, it does not need to be sold at all.
Personal Property
Household goods, furniture, collectibles, and other tangible items sell through estate sales run by professional liquidators, live or online auctions, or direct sales on online marketplaces. Professional estate sale companies typically charge a commission of 20% to 40% of gross sales, which covers sorting, pricing, staging, marketing, and running the sale. For fine art, jewelry, or rare collectibles, specialized auction houses often achieve better prices than a general estate sale.
Financial Accounts and Investments
Present your letters and the death certificate to each financial institution. They will close the decedent’s accounts and transfer funds into the estate’s checking account. For investment portfolios, you may need to sell holdings and wait for trades to settle before cash becomes available.
The Stepped-Up Basis Advantage
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 is $200,000. Sell for $200,000 and there is no capital gain. Sell for $205,000 and the taxable gain is $5,000. Without the stepped-up basis, the estate or beneficiary would owe tax on the full $190,000 of appreciation. The rule applies to real estate, stocks, and most other capital assets, which is one more reason to document every date-of-death value carefully: that number becomes the new tax basis.
Distribute What’s Left and Close the Estate
With debts paid, taxes filed, and assets converted, prepare a final accounting. This is a detailed report showing every dollar in, every dollar out, and how the remaining balance will be divided. Many probate courts require this accounting before they will approve distributions.
If there is a valid will, distributions follow its instructions. Without one, state intestacy laws control who inherits and in what shares, typically favoring the surviving spouse first, then children, then parents and siblings, with more distant relatives inheriting only if no closer family exists. Specific shares vary by state.
As each beneficiary receives their distribution, collect a signed receipt and release. The document confirms receipt and releases you from further claims related to that distribution. Once all receipts are collected and the court reviews the final accounting, file a petition to close the estate. The court’s discharge order formally ends your authority and obligations.
What It Costs
Liquidating an estate is not free, and the costs come out of estate assets before beneficiaries receive anything. Probate court filing fees vary significantly by state, generally running from a few hundred dollars to over $1,000, with some states scaling the fee to estate value. Attorney fees for probate work 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 the estate’s value, typically between 2% and 5%, often on a sliding scale where the percentage decreases as the estate grows. Many states instead let the court determine “reasonable compensation” based on the work involved, and a will can specify a different amount that overrides the default.
Professional services add up. Appraisals for real estate or valuable personal property, estate sale commissions of 20% to 40%, real estate agent commissions, and accounting fees for tax preparation all reduce what is available for distribution. Keep detailed records of every cost. The final accounting depends on it, and so does your protection against accusations of mismanagement.