Who Pays Probate: the Estate or a Beneficiary?

By John Stevens J.D.

The beneficiaries, or those named in a decedent's will, are often anxious to receive their inheritances, but an estate must often be administered through a court proceeding referred to as probate. During the probate process, the court works in conjunction with the person managing the estate, called the executor or personal representative, to value the decedent's assets and pay off the his creditors. Beneficiaries are often concerned as to whether they are required to pay those debts, or whether the debts are paid by the estate. It is the estate that is liable for the decedent’s debts; however, those debts may include more than just the decedent’s creditors.

Professional Services

Probating an estate commonly requires the services of a number of professionals. An attorney is often necessary to ensure the legal requirements of the probate process are properly followed. If the decedent left property with an uncertain value, whether real estate or personal property, an appraiser may be required to establish a value. Many probate estates are required to pay tax, which may require the assistance of an accountant and tax preparer. The executor of the estate, as appointed by the court, may also be entitled to reasonable compensation for carrying out her duties. Each of these service providers is entitled to receive compensation from the estate, rather than from the beneficiaries.

Bond Requirements

The role of an executor is of critical importance when an estate is probated. An executor is responsible for ensuring the decedent’s final wishes are carried out as noted in the will. Because the executor is in charge of the decedent’s property, states commonly require an executor to post a bond, which is similar to an insurance policy, that protects the beneficiaries in case the executor mismanages the estate property. If a bond is required, the executor may purchase the bond with funds from the estate.

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Paying Creditors

The vast majority of people die while owing some person or entity money. Whether the debt is substantial, such as a mortgage, or comparatively small, such as a utility bill, most debt holders are entitled to receive payment for their claims. Because these debts were the obligations of the decedent, it is the decedent’s estate that pays these debts rather than the beneficiaries.

The Danger or Distributing Property to Beneficiaries Early

Beneficiaries are almost always paid after the estate’s taxes and other debts have been paid first. An executor may have the discretion to pay beneficiaries early, but the executor must ensure that enough funds are left in the estate for debts before distributing anything to the beneficiaries. If the executor distributes property to the beneficiaries early, and the executor later discovers that she did not reserve enough money to pay the decedent’s debts, the decedent’s creditors could force the beneficiaries to return all or a portion of the money they received back to the estate. The rationale for this principle is that the property belonged to the estate, and ultimately to the creditors, so the beneficiaries never owned the property.

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References

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