Unfortunately, many people making their estate plans do not realize the impact that expenses and debts can have on their assets. Both paying expenses of probate and administration and paying debts of the deceased person could substantially reduce a larger estate.
If someone passes away with a substantial estate, the cost of probate alone might make a big impact. In California, the probate fees depends on an estate’s size. The bigger the estate, the more expensive the fees. These fees go to the personal representative (executor) and the representative’s attorney. They can range in the thousands of dollars for a several hundred thousand dollar estate. (See Probate Code § 10800, 10810.) With the selling price of real estate in California these days, just a house could bring the estate up to this value.
Further, the estate may need to pay for professionals to help with administration of the estate. For example, an estate that includes an apartment building may need to pay a property manager or realtor. These costs, as well as court costs, add up quickly.
Before a personal representative can deliver any inheritances to heirs, he or she must pay off the creditors. The representative has to give notice and allow time for creditors to make claims against the estate. If the deceased person had credit card debt, a mortgage, or other debts, all may reduce the estate’s value.
Once the creditors make claims, the representative pays them off using estate funds. If the estate does not have enough cash to pay all of them, then assets must be liquidated (such as selling a house). If the estate still cannot pay everyone, then creditors get partial payment. Unfortunately, every payment to a creditor means less money going to a deserving heir of the deceased person.
Because paying expenses and debts can substantially reduce an estate’s value, avoiding these payments by estate planning can help future heirs. For example, you might prioritize paying down credit card debt with your cash reserves so that your children can inherit the house. Alternatively, you might move assets into a irrevocable trust that does not have to be probated. There are many options for reducing these payments that you can put in place now – without ignoring the reality of how expenses and debts can cost an estate money.
Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.