Estate administration can take months to complete. The personal representative appointed by the courts or selected by the decedent attends probate proceedings. They collect and secure the property of the deceased individual.
They can then distribute assets in accordance with state law or an estate plan. Regardless of who might inherit from the estate, certain other obligations typically take priority. Personal representatives have to ensure that they fulfill any residual financial obligations before they liquidate estate resources for heirs or beneficiaries.
The three obligations below can all potentially diminish the value of an estate and limit what people inherit at the end of estate administration. A testator may want to establish asset protection plans to limit the negative impact of financial obligations on their legacy.
Personal debts
Creditors typically require notice after an individual dies. Credit card companies, mortgage lenders and other creditors then have an opportunity to request repayment by filing a claim in probate court. Personal representatives typically need to use the state resources to pay off debt before beneficiaries and heirs receive estate assets.
Medicaid recovery efforts
Older adults may require Medicaid benefits to pay for nursing home care and other intensive services that they require later in life. Their estate may need to repay the benefits they receive after they die.
Medicaid is a needs-based program, and there is a requirement that the state attempt to recover payments made on behalf of a Medicaid recipient after their death. Unless the estate has a total value of less than $25,000, the Medicaid estate recovery program may make claims for the full value of all medical coverage provided by the program to the deceased individual.
Tax obligations
There are multiple types of taxes that may require payment during estate administration. Typically, personal representatives file a final income tax return on behalf of the decedent.
They may have to cover any outstanding income tax debt. If they sell estate assets during estate administration, the estate may have to pay income taxes as well. In scenarios where the estate is worth millions of dollars, there could even be estate taxes due.
Mistakes during estate administration and oversights while estate planning can lead to beneficiaries and heirs receiving less than a testator intends. Learning more about what happens during estate administration can be beneficial for those intending to act as a personal representative, as well as for those who want to establish effective estate plans that protect their assets.