Estate accounts function like a business account for the estate. Any withdrawals, deposits, payments, and other actions taken with the estate account must be related to official estate business.
Executors generally funnel all found checks, liquidated probate assets, and other cash into that account, and then they use it to pay off all debts and taxes before distributing what’s left to beneficiaries.
Executors are often required to deliver detailed reports and accounting to probate judges and beneficiaries when requested, and having clear explanations for why money is moving in and out of an estate account is the most important part of that report.
What Executors Can Pay For From an Estate Account
Executors can withdraw from an estate account to pay for:
- Funeral and burial expenses
- Outstanding medical bills related to the deceased
- Outstanding debts
- Notice to creditors fees
- Federal taxes
- State taxes
- Estate taxes (if applicable)
- Court filing fees
- Any real estate fees
- Appraisal fees
- Legal fees on behalf of the estate (e.g. probate lawyer)
- Other professional services on behalf of the estate (e.g. an accountant)
- Executor fees
- Trustee fees
- Notary fees
- Software and tools to make the process easier
Plus any other costs directly related to settling an estate. Executors must demonstrate reasonable decision-making when managing an estate account, so as long as the costs are taken in good faith and aren’t expensive or unnecessary, executors can act with a relative degree of freedom.
Executors should keep careful records of each action taken. This way if a beneficiary claims foul play or a probate judge asks about specific transactions or decisions, they have a record of why they were made.
What Executors Can’t Pay For With an Estate Account
Personal expenses
While executors can be reimbursed for meals and certain travel expenses by the estate, they should avoid mixing any personal expenses and payments with the estate account. Doing so can open executors up to legal risk with beneficiaries and potentially involve having to explain themselves in probate court.
An executor cannot pay for:
- Their own bills
- Any meals or travel not explicitly related to the settling of an estate
- Their own legal fees
- Any other expenses that cannot be explained as a direct result of estate management
Any costs related to non-probate assets
Assets in an estate fall into two main categories: probate and non-probate. Probate assets are any assets owned solely by the individual at death, passed on via a will, or not set up in advance to transfer ownership automatically. These are managed with an estate account and subject to the oversight of the probate court.
Non-probate assets, on the other hand, are any assets with automatic ownership transfer. Common examples include trusts, payable-upon-death accounts, life insurance policies, and anything else not considered part of the probate estate. Because these are not considered probate assets, executors cannot pay for any expense related to the holding, maintaining, or the managing of these assets.
Estate Account FAQs
Who controls an estate account?
Executors, personal representatives, administrators, executrices, or any other synonym for the person who has received their letters testamentary or letters of administration and has been appointed to settle the deceased’s estate. No one else has access.
How do I open an estate account?
Opening an estate account is quick and easy. You just need to apply for an EIN online at the IRS, and then you can open one at your preferred bank or financial institution. Most executors work with their existing bank or the bank the deceased had their funds at before passing away.
More on estate accounts here: What is an Estate Account? What It Is and How to Open One
What if an executor or personal representative makes a mistake?
While rare, there are situations when a personal representative or executor could be forced to reimburse the estate, pay off a debt, or give money to an heir or beneficiary.
This most commonly occurs when an executor distributes money incorrectly with an insolvent estate, or an estate that doesn’t have enough money to cover all of its debts and obligations. Most states have specific rules for who must get paid in what order. For example, maybe funeral expenses are paid first, then federal taxes, then outstanding medical debt, and so on. Inheritances are always distributed last. That way the people owed money get it first, and if there is nothing left over, then beneficiaries don’t get anything.
So if an executor accidentally more money to themselves or beneficiaries then they were supposed to, or paid too many debts before the right taxes, etc., then they could open themselves up to liability.
When is an estate account closed?
At the end of the probate process and when the probate judge approves the executor’s plan for how the remaining funds in the account will be distributed, then the executor will contact the bank and formally request the account to be closed.
