The Hidden Costs of Settling an Estate
It seems like it should be so easy. A loved one dies, you go to the reading of the will and the closing of an estate is complete.
That's how the process is often portrayed in television and the movies. Hollywood rarely shows scenes of the executor of the will filling out reams of paperwork, making endless phone calls or driving for miles to hash things out with the relatives of the deceased.
"Most people don't realize that serving as an executor or an administrator is very time-consuming and burdensome," says Harold Bollaci, an elder law estate planning attorney in Garden City, N.Y.
He adds that it can also be expensive and full of "obvious costs" such as attorneys' fees -- which are often a percentage of the gross estate -- court filing fees and commissions paid to the executor for his or her service in settling the estate.
But there are also plenty of not-so-obvious expenses associated with closing an estate -- that is, making sure money and property go to the right heirs and taxes are paid. Whether the deceased was rich or poor, there are hidden costs the inexperienced might never dream of, and yet seem perfectly understandable once you think about it. "As the saying goes, everyone gets their piece of the pie," Bollaci quips.
So if you're going to close out an estate in the near future, here are some reasons you may be dealing with the most expensive pie you've ever encountered.
Time is money. You might be the one closing your family member's or friend's estate -- because you feel obligated, or you feel you'll have more control in carrying out the deceased's wishes or simply because you'd like to collect the commission the executor of the will receives. Commissions vary -- some states have limits on how much commission can be charged -- but they're usually about 3 to 5 percent of the assets. (Keep in mind that the commission is income, so you'll have to pay taxes on it.)
If you are thinking of taking on the job, know that closing an estate takes time, possibly far more than you bargained for. There are papers to sign, often by multiple people, especially if there is a blended family or two involved. There's also accounting and a lot of loose ends to tie up, like selling a car or a house.
So think about what the duty might entail before you sign on as executor. You may come to realize that whatever compensation you received, you actually outspent in the time it took to close the estate.
Who the beneficiaries are can make things a snap. Or they make cause you to snap. If you have a group of like-minded, reasonable adults, your settlement paperwork costs are probably going to be "fairly simple and inexpensive because all of the beneficiaries can sign off on the accounting ... without a hearing or judicial invention," says Alyssa DiRusso, a law professor who teaches courses in estates, trusts and wills at Samford University's Cumberland School of Law in Birmingham, Ala.
But all bets are off if a beneficiary wannabe objects to being excluded from the will. "They have a right to object," Bollaci says. "Will contests can cost tens of thousands of dollars and can drag on for months and years. Frequently, accountants are called in at great expense."
The beneficiary might not be an adult. If the estate's beneficiary is a minor or considered incompetent to make his or her own decisions, the paperwork and the law gets more complicated, DiRusso says.
It doesn't have to be that way, however. A trust can be set up to manage the assets for the minor or incompetent beneficiary, %VIRTUAL-article-sponsoredlinks%and the trustee can sign off on the paperwork. "Managing hidden costs can largely be a matter of planning ahead," DiRusso says.
The beneficiary may live in another country. In that case, "all sorts of issues arise," Bollaci says. "Foreign documents submitted to the court, for example, death certificates, must be translated by a court-certified translator. In some instances, this can cost $200 per page. If an overseas beneficiary has to have documents notarized, they have to go to a U.S. consulate or U.S. Embassy to obtain a consular stamp. Depending on the country, that is like telling someone to go from New York City to Cleveland to obtain a notary public stamp."
The deceased may have property in more than one state. Then it really gets fun. "For example, if a decedent dies a resident of Florida but owns in his or her individual name a vacation residence in North Carolina, her executor will have to open two probates -- one in Florida and one in North Carolina," says Carlos Rodriguez, a senior vice president and a regional financial planner at SunTrust Bank in Tampa, Fla., who is also an estate and tax attorney.
If you are cringing because you own a vacation home elsewhere, Rodriguez adds that "living clients can avoid this by titling the out-of-state vacation residence either in a revocable living trust or a limited liability company."
Shipping costs. This is another expense you probably wouldn't consider at the outset of closing an estate, Rodriguez says. The estate might have to pay to ship coins, art, jewelry or perhaps antique furniture to relatives far, far away.
Sales costs. You have a lot of assets that aren't tied to an heir, and you're planning to sell them at an auction? Fine, but expect to pay a commission for that, both Bollaci and Rodriguez warn.
Cleaning costs. Maybe your great aunt had no artwork or coins to sell, but she had a house, and you want to sell it. The estate may end up having to pay to clean it -- or the beneficiaries may have to foot the bill, since not every estate has millions to draw upon.
Housing costs in general. "There are also hidden costs in securing a home against burglaries or vandalism by changing locks and installing a security system, especially if the home still contains estate assets," Rodriguez says. "Finally, it's important to look out for carrying costs, such as mortgage, taxes, insurance and utilities for a residence while it is marketed for sale. This can be a particularly unpleasant surprise if it sits on the market for awhile."
Or you may hope to put the house up for sale in the spring but can't quite get it ready in time. "Miss the selling season, and the estate is paying taxes and expenses to maintain a vacant home," Bollaci says.
The deceased was a terrible record-keeper. Steve Smith, an attorney at the law firm Horack Talley in Charlotte, N.C., points out that if your late relative was bad at keeping track of his or her money, you'll probably spend more in fees (or your own time) trying to sort everything out. It's yet another reason to think about hiring someone else to be the executor if that's an option -- or it may be a reason to take on the job yourself, if you pity a stranger trying to decipher your late mother's handwriting.
You might also see it as a way to get to know your parents or a loved one even better. But that shouldn't be a reason to accept the role of executor of the will. There can be a lot of hassle if things get complicated, and maybe you already know the dearly departed just fine, thanks. As everyone says, your memories of your loved ones will last forever.
Which is a good thing -- because after awhile, you'll swear that closing an estate lasts almost as long.
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