A formal inventory and appraisement is required by law for probate estates but is not required for estate administration; nevertheless, it should be done for estate administration and, in fact, is probably the most important step in the process.

The inventory and appraisement is a single document that lists every single asset with the decedent's name on it, whether or not it is in the trust. Invariably, decedents with revocable living trusts also have assets that they did not transfer to the trust, intentionally or unintentionally.

For each asset, the following information is listed: (1) description of the asset, (2) ownership (joint tenancy, in the trust, ATF or Pay on Death, etc.), (3) beneficiary designation (e.g. on IRAs, life insurance, etc.), and (4) value as of the date of death.

Not only should an inventory and appraisement be prepared, but all of the supporting documents that were used to create the inventory should be gathered in case the estate is audited.

A complete inventory and appraisement is necessary for the following:

1. To determine the amount of federal estate tax due, if any.
2. To establish the beneficiaries' income tax basis.
3. To determine who (or which trust) is to receive each asset.
4. To determine what method of transfer will be used.
5. To identify whether the property is separate or community property if the decedent was married.

It is important keep in mind that the decedent may have owned assets that do not initially seem like assets - such as royalty rights, patent rights, oil, gas or mineral rights, pending law suit proceeds, or benefits that are paid only as a result of the death, such as a lump sum burial benefit from Social Security. Reviewing all of the decedent's records and incoming mail should be sufficient to find all items. If you are unsure as to whether something is an asset or not, bring it to your attorney's attention for further advice.