Heirs or beneficiaries who expect to inherit from an estate often can’t wait for probate proceedings to end. The personal representative overseeing estate administration likely needs to delay the distribution of high-value resources until they have a clear view of the financial obligations of the decedent and the full extent of the estate.
People may end up waiting a year or longer to receive the final distributions from an estate in some cases. Unfortunately, what they inherit can amount to far less than they expected if there are certain obligations for the personal representative to fulfill.
What financial responsibilities may diminish the inheritances received by the beneficiaries and heirs of an estate?
Taxes
There are no state-level inheritance or estate taxes in South Dakota. However, there are other taxes that could require payment with estate resources. The personal representative may need to file a final income tax return on behalf of the decedent. The estate could also owe income taxes if estate administration requires the sale of estate assets. Additionally, if the estate is worth millions of dollars, then federal estate taxes might apply.
Personal debts
The student loans, medical bills and credit card balances owed by the deceased individual do not simply disappear when they die. Instead, they become the obligation of the estate. The personal representative has to communicate with creditors to advise them of estate administration. If the creditors make a claim for repayment in probate court, then the personal representative may need to use the estate’s resources to pay those debts before making any distributions to beneficiaries.
Probate expenses
Legal representation, probate court costs and other estate expenses, such as the services provided by a property management company, can add up to thousands of dollars. If there are disputes that lead to litigation during estate administration, those costs could be even higher. Typically, personal representatives have to cover all probate administration expenses before they distribute property to beneficiaries. The failure to follow the right procedures could result in personal liability.
Learning about the financial rules that apply during estate administration can help beneficiaries understand what to expect and can make it easier for personal representatives to limit their risk. Inheritances usually have lower priority than the fulfillment of certain key financial obligations.
