A variety of complications can arise during probate proceedings. Estate administration can trigger conflict among beneficiaries. In some cases, there may be questions about the conduct of the personal representative or questions about the validity of estate planning documents.
Other times, the family is comfortable with the terms included in the estate plan but may be at risk of losing some of their inheritance. There are numerous financial responsibilities that personal representatives typically have to address before they begin distributing assets to beneficiaries during probate proceedings. And, ultimately, the three financial obligations below can potentially consume a significant portion of an estate’s value.
Personal debts
Any financial obligations owed by the decedent become the responsibility of their estate after their passing. The estate may have to pay off their student loans and credit card balances. The estate could also have to address medical debts from end-of-life care. In scenarios where there is not adequate property in the estate to cover all of those expenses, the representative must be cautious to allocate assets in the right order of priority. Failing to do so might lead to personal liability if they distribute property from the estate inappropriately.
Medicaid benefits
The Medicaid estate recovery program has a right to seek repayment from an estate when someone who receives benefits dies. Long-term care costs for in-home nursing support or space in a nursing home can easily add up to tens of thousands of dollars and consume a significant portion of an individual’s estate. As is the case with personal debts, Medicaid recovery claims take precedence over the rights of heirs and beneficiaries. The personal representative of the estate has to repay the value of benefits prior to distributing resources to beneficiaries.
Tax obligations
There are several kinds of taxes that the estate may have to cover. The decedent may have outstanding income tax obligations that the estate needs to pay. The estate itself could be subject to income tax if the estate plan requires the sale of estate assets. In scenarios involving estates worth millions, federal estate taxes could also apply.
Personal representatives must ensure that they have the necessary capital to cover all major financial obligations during probate proceedings. Paying debts is a key part of estate administration, but fulfilling financial obligations may significantly diminish the overall value of an estate.