What does Estate Settlement Cost?
Unless you have observed an estate settlement close at hand, you may be unaware of the costs of settling an estate after someone’s death. Every estate is different in terms of the assets and financial obligations of the deceased, so the costs described below will not apply to everyone. The costs include paying debts incurred during the deceased person’s lifetime, as well as taxes and costs incurred as a result of the death.
Expected Cost for an Estate
The following are some of the costs that you should expect and be prepared to pay after a loved one dies:
- Funeral costs. Modest funerals can run between $5,000 and $10,000. Even if you have a prepaid funeral plan, it probably does not cover everything.
- Medical bills or long-term care costs incurred during life. Depending on insurance coverage, these can be in the thousands to tens of thousands of dollars.
- Debts of the decedent. This can include credit card bills, mortgages, rent, and other debts.
- Federal estate taxes and state inheritance taxes. Not every estate is subject to estate and inheritance taxes. In Tennessee, only estates that exceed $2 million in 2014, or $5 million in 2015 will pay TTennessee inheritance tax. Only those over $5.34 million pay federal estate taxes.
- Federal and state income taxes. The decedent’s estate is responsible for filing the income tax return and paying the taxes for the final year of the decedent’s life. If the death occurs early in the year, before the preceding year’s income tax return is filed, the estate may be responsible for filing and paying taxes for two years.
- Probate and administrative costs. These include court costs, legal fees, appraisal fees, tax return preparation fees, and executor or trustee fees.
- Payment of cash bequests to family, friends, or charities.
- Cost of preparing home for sale. If the decedent lived at home and the home must be sold after death, the estate must pay the cost of readying the home for sale, maintaining the yard, etc.
- Cost of appraising, moving and distributing personal property. If the deceased lived in an apartment with a monthly rental charge, rent will continue to be due until the decedent’s furnishings and personal property have been removed and the apartment is ready for a new tenant. The cost of appraising and moving the personal effects includes fees paid to appraisers, movers, packing and storage fees.
It is part of good financial planning to keep a cash reserve for emergency needs. Cash is always needed after a death to cover the inevitable costs of settling the estate. If sufficient cash is not available after a death, the executor may have to sell estate assets to generate cash for the necessary debts, taxes and expenses of administration.