Executor of a Will and Funeral Expenses

By Beverly Bird

People often include burial instructions in their wills or leave separate instructions with their executor regarding their wishes for funeral arrangements. This cuts down on guesswork at an emotionally difficult time, ensuring loved ones and the will’s executor don’t have to wonder what the decedent might have wanted. Despite such preparation, there may still be an issue with how to pay for the funeral.

People often include burial instructions in their wills or leave separate instructions with their executor regarding their wishes for funeral arrangements. This cuts down on guesswork at an emotionally difficult time, ensuring loved ones and the will’s executor don’t have to wonder what the decedent might have wanted. Despite such preparation, there may still be an issue with how to pay for the funeral.

Responsibility for Costs

Laws vary by state, but the decedent’s estate is usually responsible for paying funeral expenses. The executor is not personally obligated to pay these expenses, but must decide how to fund the burial before the estate is finally settled. Ideally, the decedent left cash accounts the executor can tap. Life insurance proceeds usually do not pay out until the executor provides an official death certificate, which can take weeks, and insurance proceeds might not be available to the estate if the decedent named a beneficiary. In that case, the money would bypass probate and go directly to that individual, so the executor would not have access to those funds. If a loved one pays for the funeral because the estate has no immediate cash, that person is entitled to make a claim against the estate for reimbursement.

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Priority of Payment

In most states, funeral expenses receive top priority when an executor begins paying debts and expenses from estate funds. In Texas and New Jersey, for example, funeral expenses take precedence over taxes, mortgages, credit card balances and even debts secured by legal judgments. If the estate has any liquid assets, such as bank accounts, the executor can morally and legally use that money for the funeral without waiting for other creditors to submit claims to the estate for payment.

Insolvent Estates

Sometimes an estate has greater expenses and debts than assets. These estates are said to be “insolvent.” In this case, a loved one might have to step in to pay for the funeral without the ability to request reimbursement later. Unless the estate is totally insolvent -- without any money or assets, funeral expenses are usually paid before other debts. For example, for an estate with $150,000 in debts and assets of $25,000, the executor may justifiably pay for the funeral or reimburse the loved one from the assets; the balance of the $25,000 would then be apportioned between remaining creditors after the funeral costs are paid.

Tax Implications

The federal government levies estate taxes only on estates valued above a certain threshold, which changes each year. Many executors do not have to worry about filing a federal estate tax return, although some states impose estate taxes separately from the IRS. When an estate is taxable, funeral expenses are deductible; the executor pays taxes on the balance remaining after these costs are paid. The IRS requires such costs to be reasonable and usually defers to the laws of the state where the decedent died to determine what is reasonable. For example, Pennsylvania has an estate tax and allows a deduction for the perpetual maintenance of a family mausoleum. This might not seem like a reasonable cost, but if a decedent died in that state, the IRS would allow that same deduction. The IRS does not have an ironclad list of what is "reasonable"; it depends on the examining agent's interpretation and most agents are lenient.

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References

Related articles

What Expenses Can an Executor Take for Estate Tax?

When a person dies, everything he owns is included in his gross estate. For federal tax purposes, the entirety of the gross estate is not taxed. The executor is permitted to make deductions from the gross estate, decreasing the eventual estate tax obligation. An important set of deductions are expenses related to the estate. It is important to note that only estates valued over $5.12 million are required to pay federal tax. Consider consulting with a licensed attorney or certified public accountant if you are an executor and required to prepare an estate tax return.

What Happens When You Inherit Money?

If someone dies after having established a living trust, the trust assets won't go through probate. Assets, including any money that you've inherited, can be immediately distributed by the trustee under the terms of the trust deed. On the other hand, when someone dies and you inherit money under a will, you probably won't get the money immediately. The will must first go through probate, a process that determines whether the will is valid and allows interested parties to contest it.

Who Gets Paid First Out of a Deceased's Estate?

Probate is the process of settling a decedent's estate under court supervision. State law may establish an informal probate process for small estates. The executor named in a person's will -- who may be called a personal representative in some states, or an administrator if court-appointed -- must gather and preserve the estate assets and then pay the decedent's debts and taxes before distributing any remaining assets of the estate to the beneficiaries, once the creditors are paid.

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