Paying the Estate for a Gift
UPDATED: December 29, 2019
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When a person receives a gift through a will, they will be required to help with the administrative costs of probating that will. If one person accepts a substantially smaller portion of the estate than the other heirs, there will be factors to determine how much of the total cost they will absorb.
Individual state probate laws govern how wills are handled and paid for in court. Most state laws will consider the size of estate, the availability of other property for abatement, and any express provisions in the will to determine, how much of the costs of probate each heir should pay.
A court has the discretion to order administrative costs to be paid by any party to the proceeding or out of the assets of the estate. Probate costs are usually a percentage of the estate. The larger the estate, the larger the probate fees will be. Some estates are too small to go through probate, and therefore costs would be considerably less. Statutes determine the size of an estate in which probate is required.
If a will provides that all debts, expenses, etc. are to be paid prior to distribution to the heirs, that distribution provision will control. However, if the assets of the estate are not sufficient to pay the debts, costs, expenses, etc., abatement may be the applicable solution.
Abatement means that the amounts to be distributed to the heirs or beneficiaries are reduced. A specific order of abatement establishes which transfers to beneficiaries are to be reduced before others. Property that has not been disposed of by a will provision may be considered first for abatement (reduction) to pay the outstanding debts.
When there is abatement, the personal representative of the estate reduces the beneficiary's share by the designated amount set by the court. The beneficiary can have this amount paid from property the beneficiary owns instead of having the amount the beneficiary receives under the will reduced. Some transfers to beneficiaries may have occurred during the lifetime of the deceased individual whose will is now at issue.
If the will had not been updated, and those transfers are mentioned in the will, then they are no longer part of the estate. This would mean that those items would not be available for abatement and the remaining beneficiaries may have more of their shares subject to abatement.
Estate property can be sold where the sale is necessary to pay debts or other costs, expenses, taxes, etc. Estate property can also be sold where it is in the best interest of the estate and interested parties. The will may provide for additional authority to sell property of the estate.
Some debts are considered priorities and are to be paid immediately such as funeral expenses, expenses of last illness, family allowance and wage claims provided that the estate has sufficient funds for payment of these items. As for other debts, the personal representative is not required to pay until ordered by the court. Transfers to the beneficiaries occur on the date of death.
An advantage of a living trust, as an alternative to a will, is that with the living trust, the costs and delays of probate are avoided. Whether you are considering estate planning or you are a beneficiary of an estate, consult with a probate attorney before you finalize any decisions regarding the estate. Most state laws provide a variety of options for your estate planning objectives.