Protecting Your Family And Future

3 expenses that can diminish what people inherit from an estate

On Behalf of | Feb 4, 2025 | Estate Administration/Probate |

Estate administration is a major responsibility. Those who agree to oversee probate proceedings have to communicate with multiple parties, follow the law and abide by the instructions provided by the decedents.

Sometimes, personal representatives have to deal with an insolvent estate. There may not be enough resources in the estate to fulfill all of the testator’s financial obligations. Other times, the estate can cover necessary expenses, but beneficiaries may receive a noticeably reduced inheritance.

There are several crucial financial obligations that personal representatives must ensure they address during estate administration. What financial obligations typically take priority over inheritance rights during probate proceedings?

1. Probate costs

State statutes create a clear order of priority for financial obligations during probate. The estate has to cover probate costs before fulfilling most other financial obligations. Court costs, attorney fees and other probate expenses require payment using the state resources before a personal representative makes significant distributions to beneficiaries or heirs.

2. Tax obligations

There are several types of taxes that might apply to an estate. The deceased individual may have outstanding income taxes. Even those without regular income may have minor tax obligations at the time of their passing.

Personal representatives typically file a final tax return to help ensure they pay any income tax liabilities. They may also have to file an income tax return for the estate if they sell estate resources.

Finally, if the estate is worth millions of dollars, then there could be estate taxes to cover as well. Personal representatives generally need to cover tax obligations before making distributions to those hoping to inherit from the estate.

3. The personal debts of the decedent

People accumulate many different types of financial obligations. Many people have revolving lines of credit that may have a balance due when they die. If the decedent had medical challenges, there might be hospital debts to address.

They may even have student loans from when they went to school years ago. Typically, even unsecured personal debts owed by the decedent take priority over inheritance rights. If personal representatives don’t retain resources to cover probate costs, taxes and debts, then they might be personally liable.

Understanding which financial responsibilities require extra attention during estate administration can reduce the risk involved in overseeing the probate process. Many personal representatives decide to secure legal assistance to avoid mistakes that could have financial repercussions.

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