Settling an estate can be complex and time-consuming—it all depends on how much “estate planning” was done. According to a recent article from yahoo! Finance titled “What Expenses Are Paid by the Estate vs. Beneficiary?” the executor is the person who creates an inventory of assets, determines which expenses need to be paid, and distributes the remainder of the estate to the deceased’s beneficiaries. How does the executor know which monies are paid by the estate and which by the beneficiaries?
First, let’s establish what kind of expenses an estate pays. The main expenses of an estate include the following:
Outstanding debts. The executor has to notify creditors of the decedent’s death, and the creditors then may make a claim against the estate. Because a person dies doesn’t mean their debts disappear—they become the estate’s debts.
Taxes. There are many different taxes to be paid when a person dies, including estate, inheritance, and income tax. The federal estate tax is not an issue unless the estate value exceeds the exemption limit of $12.92 million for 2023. Not all states have inheritance taxes, so check with a local estate planning attorney to determine if the beneficiaries need to pay this tax. If the decedent has an outstanding property tax bill for a real estate property, the estate will need to pay it to avoid a lien being placed on the property.
Fees. There are court fees for filing documents, including a will to start the probate process, to serve notice to creditors, or record the transfer of property with the local register of deeds. The executor is also entitled to collect a fee for their services.
Maintaining real estate property. If the estate includes real estate, there will likely be expenses for maintenance and upkeep until the property is either distributed to heirs or sold. There may also be costs involved in transporting property to heirs.
Final expenses. Unless the person has pre-paid for their funeral, burial, cremation, or internment costs, these are considered part of estate expenses. They are often paid out of the death benefit of the deceased person’s life insurance policy.
What expenses does the estate pay?
The estate pays outstanding debts, including credit cards, medical bills, or liens.
- Appraisals needed to establish values of estate assets
- Repairs or maintenance for real estate
- Fees paid to professionals associated with settling the estate, including executor, estate planning attorney, accountant, or real estate agent
- Taxes, including income tax, estate tax, and property tax
- Fees for obtaining copies of death certificates
The executor must keep detailed records of expenses paid out of estate assets. The executor is the only person entitled by law to see the decedent’s financial records. However, beneficiaries have the right to review financial estate account records.
What does the beneficiary pay?
This depends on how the estate was structured and if any special provisions are included in the person’s will or trust. Generally, expect to pay:
- Final expenses not covered by the estate
- Personal travel expenses
- Legal fees, if you decide to contest the will
- Property maintenance or transportation costs not covered by the estate
Some expenses are deductible, and the executor must use IRS Form 1041 on any estate earning more than $600 in income or with a nonresident alien as a beneficiary.
An estate planning attorney must create a comprehensive estate plan addressing these and other issues in advance. If little or no planning was done before the decedent’s death, an estate planning attorney would also be essential in navigating the estate’s settlement.
Reference: yahoo! Finance (Dec. 29, 2022) “What Expenses Are Paid by the Estate vs. Beneficiary?”
