What Can (And Can’t) Be Paid Out of an Estate Account


Personal representatives and executors take on the often-unappreciated work of administering an estate, and most tackle it without any formal training. Handling a deceased loved one’s estate account correctly can be one of the most anxiety-inducing parts of the process, especially when friends and family scrutinize the process.

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For those who are doing this for the first time, one of the basic guidelines is to treat the estate account like a business account. Just like a business account, all the transactions going in and out should be for the estate only. This and a few additional rules of thumb can keep you in the right direction.

Who’s Responsible for Making Payments Out of an Estate Account?

In the course of administering an estate, the personal representative—also called the executor in some states—handles the money and assets coming in and out of the estate. Opening a bank account especially for this purpose helps to create a clean accounting record.

Instead of being in an individual’s name, estate accounts are titled to the effect of “The Estate of John Smith, Deceased, Judy Smith, Executor.”

Just like with any other bank account, only the individuals with signing authority named on the account can make withdrawals or payments from the account. Most personal representatives designate only themselves as a signer on the account.  

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How to open an estate account

The bank or other financial institution usually needs to see proof of your authority to act on behalf of the estate. That authority comes from the probate court in the form of letters testamentary or letters of administration.

You can get letters testamentary or administration when starting the probate process. The court appoints a personal representative of the estate and then issues the letters as proof of the personal representative’s authority. The personal representative also needs a tax ID number for the estate to open an estate account. You can get one on the IRS website for free. 

In addition to the letters, the bank might also ask for a copy of the decedent’s death certificate. Before opening the account, first make sure to get a tax ID number for the estate. 

What goes into the estate account?

After opening an estate account, the next question is what to put in it. 

In general, personal representatives use the estate account to corral the decedent’s liquid assets in one place. Having an estate account provides a dedicated place to deposit any checks or cash that you may find. The personal representative can also transfer the money from the decedent’s bank accounts into the estate account. 

However, you want to keep in mind that adding a payable-on-death beneficiary removes an account from a probate estate. As a result, those do not go into the estate account. Beneficiaries can collect those accounts with just the presentation of a death certificate.

What Can Be Paid Out of an Estate Account?

The complexity of handling an estate account depends on the specific probate estate. The personal representative concludes all of the estate’s affairs, not just the distribution of assets.

In a typical estate, personal representatives may pay final expenses, settle debts with creditors, file the estate’s taxes, and handle ongoing costs. 

1. End-of-life care and funeral costs

The immediate need to cover funeral and burial costs often spur loved ones to start the probate process, and they are among the expenses that can be paid from the estate account. 

The early days of estate administration can feel like being caught in an avalanche of bills. Besides arranging for the burial and funeral costs, the personal representative often receives bills for the decedent’s end-of-life care. Depending on how long they were unable to take care of things independently and the type of assistance they had, you might find many bills with due dates around the corner.

2. The deceased’s creditors 

On top of the more recent funeral and care invoices, personal representatives often find longer-term debts to creditors. Some common debts include credit card bills, automobile loans, property mortgages, and other personal loans. 

The probate codes in most states require that the personal representative provide notice to creditors of the estate’s existence by publishing a notice in the newspaper. Creditors can then file a notice of their claim against the estate in the probate court and contact the personal representative to request payment. Each state sets out the process for contesting claims against the estate.

Many estates lack enough assets to cover all the debts and expenses. In that situation, the personal representative follows the hierarchy of claims set in state probate law. 

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3. Federal and state taxes

While federal and state inheritance taxes only apply to ultra-high value estates, more modest estates may still need to pay federal and state income taxes. Additionally, the personal representative may need to file an individual tax return for the decedent. 

The personal representative can pay any resulting tax bill from the estate account. Alternatively, if the estate is entitled to a refund, that can be deposited in the estate account.

4. Distributions to heirs and beneficiaries

It is preferable to have any assets outvalue the estate’s debts and expenses. Specifically, an estate account would have major outgoing items such as the distributions to heirs and beneficiaries. 

The personal representative must follow the decedent’s will when divvying up the estate’s assets unless the court orders otherwise. When the decedent dies without a will, the personal representative follows the state’s intestacy laws to divide the assets.

5. Estate expenses and personal representative fees

Finally, the estate account also covers ongoing costs incurred by the estate and any fees due to the personal representative. 

Administering an estate can take some time, especially if disputes among heirs or creditors pop up. During that time, the estate assets require upkeep, and the estate pays ongoing expenses like insurance, utilities, registrations, and taxes. 

The estate may also accumulate fees due to the personal representative if the personal representative. Personal representatives often charge an hourly rate or a percentage of the estate assets. 

What CANNOT Be Paid Out of an Estate Account?

Many expenses can come about in the course of wrapping up an estate. As mentioned before, using a dedicated bank account can help with separating expenses. However, there may be some transactions that blur the line. Keep an eye out for a few common pitfalls.

1. Personal expenses

Estate accounts give personal representatives a way to keep estate accounting clear and tidy. Commingling personal funds or using the estate account to pay for non-estate expenses are two ways to bungle being a personal representative.

Even if you intend to pay back the estate account right away, avoid using the estate account to pay for anything not directly related to the estate and its administration.

The court considers the personal representative a fiduciary of the state, meaning the personal representative’s job is to legally act in the estate’s best interests and avoid self-dealing. Commingling funds or using estate funds for your own use can result in you receiving court and being removed as a personal representative.

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2. Non-probate assets

Non-probate assets, expenses for maintaining non-probate assets, and the transactions of non-probate accounts should also remain entirely separate from the estate account. 

People can set up their estates with any combination of trusts, wills, and beneficiary designations, with the result being a patchwork of assets with different rules and management. Often, the personal representative also acts as trustee of a trust for the decedent, making it all a little confusing. 

The personal representative will have to keep estate assets separate and ensure that estate account funds only go toward estate assets and management.

What Happens When the Personal Representative Pays the Wrong Thing Out Of the Estate Account?

Some of the most challenging situations for personal representatives happen when heirs or creditors disagree about how items should be paid from the estate account.

While personal representatives are rarely personally responsible for estate expenses, the probate court can find them liable when they fail to act according to the state’s probate code. The court can order the personal representative to reimburse the estate or other wronged party in those situations.

State probate codes set out the order to pay off any debts, expenses, and deliver assets to beneficiaries. If a personal representative makes any payments out of order when the estate can’t cover all its expenses, it can result in a legal mess.

In worst-case scenarios, the personal representative can be responsible for reimbursing the estate to pay the correct creditor. Alternatively, personal representatives sometimes disburse the assets to the heirs too quickly and then lack the funds to pay the estate’s expenses and creditors.

The probate court can settle disputes about estate administration. The best way to avoid this is for a personal representative to consult with an attorney to confirm that they are following their state’s probate rules.

What Happens to an Estate Account Once All Fees, Debts, and Other Bills Are Paid?

After the personal representative settles all the amounts due and makes the final distributions to the beneficiaries, they can close the estate. Closing the estate terminates their authority to act and provides closure to everyone involved. 

States may offer more than one procedure for closing an estate. The easiest, fastest option is usually an informal closing method. 

An informal closing acts as notice to all interested parties that, from the personal representative’s perspective, the business of the estate is done. If nobody objects, the court closes the case after a set amount of time but does not formally discharge the personal representative.

For a more complete termination of an estate, you can follow your state’s formal closing procedures. While it is more effort and paperwork, it ends with a formal discharge – hence its name – for the personal representative. 

In a formal closing, personal representatives submit estate accountings to get their work approved by the probate court. They also notify all interested parties, including creditors and heirs, of the request to close the estate. That acts as the estate equivalent of “speak now or forever hold your peace” if anyone disputes the personal representative’s work on behalf of the estate. 

Careful Accounting Makes Estate Account Handling Easier

Being the personal representative of an estate comes with a lot of responsibility, especially related to the estate account. Careful and accurate accounting makes reporting to the court, creditors, and heirs much easier.

Most importantly, never commingle the estate account with your personal funds. Ultimately, the personal representative acts as a steward of someone else’s money, so exemplary behavior is necessary.


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