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Caring For Generations

Who Pays Estate Taxes and When?

On Behalf of | Mar 19, 2016 | Uncategorized

When it comes to administering an estate, the same common sense rule applies as when the testator (the one who has passed away) was still alive: a person must first attend to his own debts and expenses before he or she can give away what is left, observes Alexander Bove, Jr., author of The Complete Book of Wills, Estates, & Trusts. With the exception of funeral expenses and certain priorty allowances, the beneficiaries of an estate, Bove explains, can only take what is left after the debts and expenses of the estate have been paid.

The priority of payment depends on state law but is typically as follows:

  1. Funeral expenses (these must be reasonable in proportion to the size of the estate)
  2. Administrative expenses
  3. Taxes (both federal and state)
  4. Expenses of last illness
  5. All other debts

Creditors sometimes have to act fast to collect what is owing them, because, as Bove points out, the burial often takes place right after the death and long before the will is probated and an executor appointed.

Quite often, a surviving spouse will pay the funeral expenses out of accessible funds such as a joint bank account. If the spouse is not the only beneficiary, Bove suggests, doing things that way might not be the best idea.

The person responsible for paying all the charges is the executor of the estate. This is a highly important task, the author reminds readers, because if an executor fails to pay a debt that should have been paid, he/she could be held personally liable for the money. Matters are more complicated than simply getting all the bills paid, however.  Which assets should be used to pay those expenses and debts? The general rule is that debts and expenses are paid out of the “residuary” estate, meaning what is left after specific bequests are taken care of. And, after paying all those expenses, what should be done with all the rest of the estate’s money?

When it comes to estate administration, as Tevye remarked in “Fiddler on the Roof”, “It isn’t easy!” At Rebecca W. Geyer & Associates, we know. We counsel and represent executors,
personal representatives, trustees and beneficiaries on the proper settlement of estates and administration of trusts, with an eye towards minimizing stress at an already difficult time.

There are quite a number of services we regularly provide for clients when it comes to probate and estate administration:

  • advising clients regarding the valuation and taxation of property interests
  • assisting with the evaluation and orderly payment of claims
  • advising clients regarding title issues and the proper disposition and distribution of assets,
  • completing beneficiary claim forms
  • assisting with trust funding
  • providing trustee representation
  • preparing inheritance tax returns,
  • closing the proceedings.

It’s a process, dealing with an estate, no doubt about it. “Whether the estate is large or small,” Bove says, “the important thing is that it is properly settled and that the beneficiaries get their money as quickly as possible.”

– by Kimberly Lewis of Rebecca W. Geyer & Associations