No matter how straightforward an estate seems, family members will likely have to go through a probate process in state court before the estate’s assets can be distributed to heirs and beneficiaries. If the costs involved in probating your estate outweigh its assets, your estate may be declared insolvent and your beneficiaries may inherit nothing. State laws determine the precise probate process for estates within their borders and settlement costs may vary among states.
Publication and Mailing Expenses
Once the executor is appointed by the court to manage an estate, he must gather the assets together and provide notice of death to the decedent's creditors. Each state requires this notification process and has its own rules. Your state may require the executor to send a letter to known creditors, publish a notice in a local newspaper, or both. Once notice is properly given, creditors of the estate have a certain period of time determined by state law to file claims against the estate. For example, if you owed money on a credit card at the time of your death, that credit card company can make a claim for payment against the estate. While these are not technically settlement costs, legitimate creditor claims must be paid before your estate can move forward; the debts you owe at the time of your death are taken out of your estate assets before any beneficiaries can inherit. Certain costs, such as mailing and newspaper notices, are paid immediately, so the executor must keep good records to ensure the estate’s expenses are accurately documented.
Your final expenses, including funeral and medical expenses, are a special category of costs that must be paid before beneficiaries can inherit assets from the estate. You can purchase insurance to help with these costs and some government programs, like Social Security, may pay a portion of these final expenses. But if your expenses are not paid from another source, the estate may have to shoulder the costs. For example, Kansas law requires that funeral and certain medical expenses are the first expenses to be paid from an estate that has more debts than assets.
In addition to paying the estate's debts and making payments for final expenses, the estate must also pay administration costs that are likely to be 2 to 7 percent of the estate’s total value, depending on state law. For example, your executor may have to hire appraisers to determine the value of items in the estate and pay court filing fees, legal fees and accounting fees. Hiring probate attorneys may cost thousands of dollars depending on your state’s laws and complexity of the estate, and if someone contests or disputes the will, costs can increase considerably. Each state has its own rules to estimate the costs permitted for professional fees, such as executor and attorney fees; however, they must be reasonable or the executor will not be permitted to pay them.
Your estate may owe taxes, depending on its size and your state’s laws. Estate taxes are in addition to taxes owed on your final personal income tax return. For example, as of 2013, Maine assesses taxes on estates over $2 million in value with higher rates as the estate approaches $8 million. Federal law requires tax payments from large estates, though the value required to trigger federal estate taxes changes periodically. If your estate’s assets earn money during probate, such as interest on investments, your executor may have to file an estate tax return to pay taxes on the income earned.