When you serve as the representative designated to bring closure to the affairs of a loved one, the costs tend to add up fast—and so do the tasks. Read on for advice from estate law experts about what to expect and how to handle the fees, including what expenses can be charged to the estate.
Handling Estate Expenses
An important aspect of estate law is the designation of a fiduciary to administer the affairs of the deceased. When there is a will, this person is typically referred to as an executor. When there is a trust, the fiduciary is a trustee. Depending on the circumstances and location, the fiduciary could also be referred to as a personal representative or an administrator. No matter what term is used, the family member, friend or professional appointed has a fiduciary obligation “to act with the utmost good faith,” putting the interests of the beneficiaries before their own, while administering the affairs of the estate. Trustate points out, “To put it bluntly, administering an estate is expensive. Between property maintenance, potential legal fees, and memorial expenses, the bills can add up quickly,” and breaks the costs and expenses associated with closing an estate into these five categories:
- Last debts.
- Property maintenance/management expenses.
- Distribution expenses.
Given the significant responsibilities involved in serving as a fiduciary, bonds, frequently referred to as estate bonds may be requested. Estate bonds are a type of fiduciary bond, and lawyers explain: “A fiduciary bond is a legal instrument that essentially serves as insurance to protect beneficiaries, heirs and creditors when a fiduciary fails to perform honestly or competently…In general, a fiduciary is someone who owes a duty of loyalty to protect the interest of another….” It’s quick and easy to obtain estate bonds from leading national provider, Colonial Surety. The steps to obtaining an estate bond or other fiduciary bond at Colonial are easy: get a quote online; fill out the information, and enter payment. Then, print or e-file the bond in minutes.
Debts Before Distributions
Among the challenges of serving as a designated estate representative is that debts must be settled before assets can be distributed to the intended beneficiaries. It is not uncommon for expenses to put a dent in anticipated assets. Taxes are a category all their own, and Trustate provides a helpful overview right here. The final expenses of the deceased are likely to include “medical expenses, debts, personal expenses (credit cards, cell phone, etc.)” and some of these may be tax deductible. Many of the expenses associated with the funeral are also eligible for estate tax deductions.
Estate representatives have the responsibility for maintaining all estate property prior to selling or distributing it, and associated expenses can include security systems, insurance and upkeep. Experts advice that most of these expenses should be paid from the estate and offer these examples and pointers:
Closing costs on property sales – This includes things like realtor’s commissions, title company fees, title insurance, etc. Closing costs would be clearly outlined in the closing documents received prior to closing on the sale of the deceased’s property.
Appraisal fees—…Often, the Executor or Personal Representative needs to determine the fair market value of certain property owned by the decedent as of his or her date of death for tax purposes and also if distributions of property are going to be made “in kind” (i.e., a piece of tangible property distributed directly to a beneficiary rather than sold to a third party and making a cash distribution to that beneficiary instead).
Cleaning and moving – Nearly every estate where real property is being sold requires clean up of the home/land and organization, sales, distribution and/or disposal of the personal items of the deceased loved one. These cleaning and moving expenses can be paid for by the estate.
Junk removal also presents costs and challenges for estate representatives to navigate, though of course grief-stricken and sentimental relations and friends of the deceased are unlikely to consider possessions. Ideally, the distribution of important possessions has been attended to in a will, and as Trustate explains, “The shipping of certain items to be charged to the specific beneficiary of the item or his/her share of the residuary estate, if any, usually the shipping of certain movable goods such as furniture, artwork, cars, etc., can be charged to the estate as an estate expense. However, executors must be careful to read the deceased person’s Will to make sure payment for this wasn’t to be handled in a different way.”
Good To Know
As estate representatives tackle their many duties, they will find it helpful to know that many of the miscellaneous expenses they occur can be charged to the estate, as long as they are reasonable. According to experts, such expenses are likely to include transportation to and from the estate, postage for estate documents, notary fees, filing and other administrative fees for probate court and the fees associated with procuring death certificates. Given the scope and time consuming nature of their duties, it is also acceptable for estate representatives to be remunerated by the estate, as Trustate explains: “Estate executors, personal representatives, and administrators are legally entitled to take a ‘commission’ on the value of the estate as a fee for their services in these roles. The fee amount and timing for when the fee can be taken is determined under relevant state law and is based on the value of the estate and the income it generates. It is typically a blended rate of around 3.5% of the estate.”
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