How (and when) does an executor pay beneficiaries of the estate?
When we hear the words will, probate, or estate, most of us think about the people inheriting money — the beneficiaries of an estate.
The truth is that beneficiary inheritance is the last step in a long line of tasks that an executor must complete during the probate process.
For beneficiaries, that can be a surprising reality. And they may experience frustration or push the executor to release their inheritance earlier.
Here’s what you need to know about when and how an executor pays beneficiaries.
Tasks before an executor can pay beneficiaries
There are many things an executor must do before they can disburse any funds to the beneficiaries.
File the petition for probate
In a traditional probate case (one where assets aren’t held in trust), the executor isn’t legally allowed to handle the estate until they get authorization from the probate court. They can’t open an estate bank account or get access to the deceased’s funds.
The executor begins that process by filing a petition for probate with the will. If there is no will, the person who intends to administer the estate files a petition for probate. The court then authorizes either the executor or the administrator to serve as the personal representative of the estate.
Inventory the decedent’s assets
The executor must create a detailed inventory of the decedent’s assets and submit it to the court. The inventory could include anything from bank accounts to a set of antique silverware to a vacation home (and everything in it).
The inventory must include estimated values of all the assets. Eventually, some items may need to be appraised to determine their actual value. The total value of all the deceased’s assets will be used to set tax liability.
It also gives beneficiaries an initial understanding of the estate’s value so they can keep track of how it changes as the executor deals with debts and expenses.
Pay final bills
Before an executor can provide any funds to a beneficiary, they have to ensure that all the deceased’s bills, taxes, and estate administration expenses are paid.
The executor must notify any known creditors of the death so those creditors can make a claim against the estate. Executors are also usually required to put notice in the local paper to inform any unknown creditors.
Creditors generally have between three and six months to submit a claim. If they’ve been duly notified and fail to submit their claim in the time allowed, the claim can be denied by the estate.
But creditors also have a time period within which they can dispute a denied claim. All of these mandatory time periods can slow down the probate process — and when beneficiaries receive their inheritance.
The executor must also pay estate administration expenses, like funeral and burial costs and possibly executor fees. And finally, the executor must pay any taxes due on the deceased’s final tax return and on an estate tax return if one is required.
All those expenses — debts, tax, and administration costs — can reduce the size of the estate. Sometimes that means beneficiaries don’t end up with quite the inheritance they were anticipating. (And we’ve got you covered on whether you pay taxes on that inheritance.)
When an executor pays beneficiaries of the estate
Once all the debts, taxes, and administration costs are paid, the executor can make distributions to the beneficiaries. While some beneficiaries may not like waiting so long, this is the very last step because the executor can be held liable if they release assets to beneficiaries and then don’t have enough left to pay debts.
When this final step occurs depends on the complexity of the estate. For example, a small estate may move through the probate process relatively quickly — within a few months. More complex estates might take a year (or multiple years) to reach that final stage.
What if beneficiaries need money quickly?
Sometimes the beneficiaries of an estate are people that the deceased directly supported while they were alive — usually a surviving spouse and minor children. They may need immediate access to funds from the estate.
Many state laws provide for something called a family allowance in that instance. A family allowance is money that an executor can legally release to the deceased’s dependents before estate debts, taxes, and expenses are paid. Like estate expenses, a family allowance decreases the value of the estate.
State probate laws generally put a cap on the amount of a family allowance, but it can provide a cushion to family members that are waiting for inheritance at the end of the probate process.
The family members must petition the court for a family allowance.
When can an executor release bequests to beneficiaries?
What about a specific bequest in the will? Do you have to wait until the end of probate to provide it to the intended beneficiary?
Let’s say a mother’s will includes a provision that her daughter should receive all her jewelry. This is called a specific bequest.
Once the executor has done an inventory and knows there are sufficient funds available to cover the estate’s debts, taxes, and expenses, the executor can release the jewelry to the daughter.
Unfortunately, there are times when an estate is insolvent — it doesn’t have assets sufficient to cover its debts. In those instances, assets (including personal property) may have to be sold or liquidated to pay existing debts, taxes, or estate expenses.
In practice, an executor would likely attempt to keep the specific personal property bequests if at all possible. If the estate is insolvent, it’s smart to seek legal advice before proceeding with any sale or liquidation of assets.
Serving as the executor of an estate can be complicated, and beneficiaries aren’t always happy with the way probate progresses. Schedule a free confidential consultation with a probate expert to see if we can make your probate process easier.