Probate isn’t cheap. In fact, the probate and estate settlement process costs approximately $14K for the average estate.
Thankfully, you won’t be paying the $14K out of your own pocket as the executor or executrix of the estate.
Many expenses incurred during the probate process can be written off and deducted from the total estate value—potentially saving you thousands of dollars in the long run.
Think of it like opening up a temporary business. You'll funnel everything into an estate account and claim your expenses on a separate estate tax return as you formally dissolve the estate.
Let’s take a look at what expenses you can deduct.
What Expenses Can an Executor Claim?
The size of an estate has a significant impact on the final probate costs. If you can reduce the total value of the estate, you may be able to save money in the process.
There are a handful of expenses that can be deducted from the taxable estate value.
Those expenses include:
- Burial and funeral expenses
- The deceased’s outstanding debts
- State inheritance taxes
- Charitable gifts after death
- Estate administration costs
Let’s take a look at those tax-deductible expenses individually.
Burial and funeral expenses
Any expenses incurred in the funeral and burial process of the deceased can be deducted from the estate’s total taxable value.
These expenses include (but are not limited to) the following:
- Burial plot purchase
- Tombstone purchase
- Casket purchase
- Funeral home expenses
- Costs of the funeral service
- Transporting the body to the burial location
Alternatives to traditional funerals and burials can also be deducted from the taxable estate value.
The deceased’s outstanding debts
As the executor, one of your tasks in the probate process will be to pay off any debts that were still outstanding upon the estate owner’s passing.
If there aren’t enough liquid funds in the estate to pay off the debts, you may be required to sell an asset in order to raise the funds to pay off the debts. Any debts that are paid off will be deducted from the estate’s taxable value.
State death taxes
In addition to any outstanding debts, any state estate or inheritance tax—or “death tax”—can also be deducted from the total estate value.
Only a handful of states have an estate tax or inheritance tax, but understanding the laws in the domicile of the estate is a crucial step in knowing whether or not the estate will have to pay additional state taxes.
If the estate does happen to be domiciled in a state with an estate or inheritance tax, the good news is that you’ll be able to deduct those taxes from the final estate value.
Charitable gifts after death
Here’s where things can get a bit tricky: any charitable gift made after death can be deducted from the estate’s taxable value.
I know what you might be thinking. How can an individual give away money after they pass away?
There are actually a handful of ways that gifts can be made after death, but the most common way is through bequests outlined in the will or through charitable remainder trusts.
It’s a common practice for individuals to give away money in their will, and any assets given to a charity can be deducted from the total estate value.
As we’ve discussed before, charitable remainder trusts (CRTs) are a popular way to reduce the total taxable estate value after the death of the estate owner. A CRT is essentially a charitable gift to a charitable institution after the grantor’s death, and it can reduce both income taxes during the grantor’s lifetime and estate taxes after the grantor’s passing.
Estate administration costs
The final expense that an executor can claim is also the broadest. An executor can deduct all estate administration costs from the total estate value.
So what are these so-called “estate administration costs?”
The IRS breaks estate administration costs down into a few different categories:
- Fees paid to a trustee
- Fees paid to attorneys and accountants
- Expenses for the management, conservation, and maintenance of the property
- Expenses accrued for the determination, collection, or refund of the estate’s tax liability.
The first two items on that list are relatively straightforward. Any fees paid to a trustee, attorney, or accountant will count as an estate administrative expense.
Expenses for the management, conservation, and maintenance of the property are slightly more vague. These are the expenses accrued in repairing, protecting, and appraising the tangible property of the deceased.
Need to replace the house’s locks? That’s an expense for the management of the property.
Need to paint the house’s walls or do some repairs before the house can be sold? That’s an expense for the management of the property.
Need to hire a certified appraiser to appraise the value of the home? Yes, you’ve got it—that’s an expense for the management of the property.
The final expense—the costs of determining, collecting, or refunding the estate’s tax liability—is perhaps the vaguest expense of all. How is the estate’s tax liability determined?
The answer is actually very simple. The estate’s tax liability is determined through the probate process.
What this last bullet point means, essentially, is that costs accrued during the probate process can be deducted from the estate’s taxable value.
Those probate expenses include the following:
- Court fees
- Filing Fees
- Notary Fees
- Travel fees including tickets, meals, and gas.
- Costs of selling assets
- Legal fees
- Executor fee
- Useful Software & Tools
- Any other professional help
All of those expenses can reduce the total estate value, thereby reducing the total estate tax that the estate will owe.
Just remember to leave a clear paper trial of being a good steward of the estate's funds in the eyes of the court and other beneficiaries. Covering a plane ticket to NYC to settle an estate as an out-of-state executor? No problem. Spending $700/night of the estate's money while you're staying there instead of opting for a more reasonable option? That could raise some red flags.
Same goes for writing off meals. If you are traveling for the explicit estate business, then maybe, but make sure every expense can be justified. Plus remember, if you are also beneficiary, you are taking from the pot that will be divided by everyone (assuming the estate has more assets than debts), so in a way you are still paying.
Now, what if you’re serving as the executor of the estate and you end up paying some of those fees out of your own pocket? Can you be reimbursed for those expenses?
Master List of Executor Expenses
If we put it all together, that's:
- Burial plot purchase
- Tombstone purchase
- Casket purchase
- Funeral home expenses
- Costs of the funeral service
- Transporting the body to the burial location
- Any debts you paid off on behalf of the estate
- Death taxes
- Certain charitable gifts after death
- Fees paid to a trustee
- Fees paid to attorneys and accountants
- Expenses for the management, conservation, and maintenance of the property
- Expenses accrued for the determination, collection, or refund of the estate’s tax liability.
- Court fees
- Filing Fees
- Notary Fees
- Travel fees
- Costs of selling assets
- Legal fees
- Executor fee
- Useful Software & Tools
- Any other professional help
- Any other costs when working on behalf of the estate
Can an Executor be Reimbursed?
The simple answer is that yes, an executor can be reimbursed for expenses accrued during the probate process.
It’s easy to see how a situation might arise where you end up paying fees out of your own pocket.
Let’s imagine the following scenario:
You’ve just been named as the executor of the estate and don’t know where to begin. You decide to hire an attorney to guide you through the probate process, but the estate does not have any liquid funds to pay for an attorney.
You pay the attorney’s fees out of pocket, hoping that the attorney will guide you through the process of selling assets in order to raise additional estate funds.
The attorney is able to help you sell assets and raise estate funds. You use a portion of these funds to reimburse yourself for the attorney expenses already paid.
Is that allowed? Yes, it is.
Is that recommended? Well no, it’s not.
As a general rule of thumb, you should never pay for estate administrative expenses out of your own pocket.
Atticus Advice: You might think that you’re just doing the right thing by paying fees out of your own pocket, but you might be setting yourself up for disaster. If you don’t keep an accurate record of expenses and then end up reimbursing yourself, the estate beneficiaries or heirs might claim that you’re taking advantage of the estate assets and taking more than you originally spent. This can be a tricky situation to get out of, so the important lesson is that you take detailed notes on all expenses accrued.
Now that we’ve covered the topic of reimbursement, it’s time to ask the next question that you’re probably wondering. Can an executor be paid?
Can an Executor be Paid?
Once again, the answer is simple: yes, an executor is entitled to collect a fee from the estate.
Being an executor is no easy task. For the time and energy that you spend in administering the estate, you are entitled to collect a fee for your services as the executor.
The executor fee will either be established in the deceased’s will or might be determined by the probate court and based on state laws. It will likely be either a flat fee, a percentage of the estate market value, or an hourly rate.
If an executor has to perform additional services—such as resolving outstanding litigation or performing tax work—then the executor may be entitled to receive additional compensation. The probate court may need to grant approval before the executor receives this additional compensation.
What is the Most Important Thing for Executors to Do?
An executor must maintain careful, detailed records of all estate expenses and fees.
It might not seem like such a big deal to keep detailed expense records, but failing to maintain records is likely to land you in hot water. As mentioned before, an estate heir or beneficiary might claim that you’ve been wasting estate funds on unnecessary expenses.
Or, if you’ve been reimbursing yourself for out-of-pocket expenses, the beneficiaries or heirs might claim that you’ve been stealing from the estate.
As the executor, the burden is on you to prove that you’ve handled estate expenses properly. If funds go missing or are unaccounted for, you are liable for the loss of funds.
Keeping a spreadsheet of all estate expenses is a smart first step in maintaining expense records.
You should also purchase a safe or secure filing cabinet in which to store invoices, receipts, and other important documents.
How Executors Succeed
(secrets & tips for not messing up)
Read the guide we wish we would have had when we found out we were going to be an executor: How Executors Get Through Probate Successfully
