It's said that nothing in life is free, and that doesn't change much after death. Even if you don't leave a will, someone must tie up the loose strings of your life, pay your debts, and file your final tax returns. Beneficiaries are never responsible for paying these things, nor is the executor of your estate obligated to come out of pocket, but she must make payment from the money and assets you leave behind.
The costs of probate fall into two categories: the expenses of settling your estate, and bills and taxes incurred during your lifetime. The former include court filing fees, postage, copying or printing documents, and gas, tolls, parking and mileage for your executor as she takes care of business. One of her first responsibilities is to open an estate bank account with any cash you left so she can pay these things from this fund. If expenses arise before she does this, however, she may have to pay the costs herself. If so, she's entitled to reimbursement from your estate. She's also entitled to reasonable compensation for her services. She may need to retain the services of an attorney if you leave complicated assets and debts, and your estate pays these costs as well. Your non-cash assets, such as real estate, will probably require appraisals to set their values, (Reference 5) and your executor will want to keep insurance policies paid up and in place to protect your valuable assets. Your estate pays all the associated fees.
Debts and Taxes
Your executor will typically pay probate expenses first, or as they come in, before she pays your debts. This is generally an orderly process by which she notifies creditors of your death and alerts them that your estate is in probate. She then accepts or rejects their claims for payment. She must prepare your final personal tax return and pay any resulting liability, as well as an estate income tax return and, if applicable, an estate tax return. She must keep the mortgage and utilities current on your home, because this is an asset of the estate that she must preserve for transfer to your beneficiaries. If your death resulted from an event that required hospitalization, your executor must pay these final bills from your estate, as well as your burial arrangements.
Your executor may have to liquidate some or all of your assets to cover the costs of your estate's operation and your final debts and taxes. In most states, selling assets requires court approval. If the executor can't raise enough money to satisfy all bills and debts, your estate is "insolvent." When this occurs, most states have a statutory order in which probate expenses and a decedent's creditors receive payment. Unsecured creditors, such as credit cards, typically bringing up the rear. Your executor must pay the costs of probate first, followed by your burial costs, your taxes, secured creditors, then, finally, all other debts. If the money runs out before your executor can pay everyone, those at the end of the line typically don't get paid. Your probate proceeding has the same effect as a bankruptcy filing if you had made one during your lifetime.
Effect on Beneficiaries
Although beneficiaries are never personally responsible for paying the costs of probate or your final debts, they may feel the bite of your expenses all the same. If your estate is insolvent so not everyone you owe can receive payment, your beneficiaries usually receive nothing, even if you bequeathed certain items to them in your will. Some states have special rules for your spouse and children – they may receive an allowance off the top of your estate before your executor pays anything else, so they would not be left completely out in the cold.
- Nolo: Why Avoid Probate?
- MyEstateManager.com: Pay Critical Estate Expenses
- MyEstateManager.com: Pay Professional Administration Expenses
- USLegal: Administration Expenses (Probate) Law & Legal Definition
- New York Life: Overview of the Probate Process
- Washington State Probate: An Insolvent Decedent's Estate
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.