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What Can Be Paid Out of an Estate Account in New York?
An estate account holds money that belongs to the beneficiaries, and every dollar that leaves it will eventually have to be explained. Most of what an executor or administrator pays is routine: the funeral home, the court, the appraiser, the lawyer, the decedent’s last bills, the taxes, and at the end the beneficiaries. The trouble comes from payments that were not the estate’s to make, or were made at the wrong time, or cannot be documented. When a beneficiary asks for an accounting, each payment appears on a schedule and can be objected to; a payment that is disallowed comes out of the fiduciary’s own pocket. This page lists what is properly paid from an estate account, what is not, how each item appears on the accounting, and what happens to improper payments. It is part of our section on trust and estate accountings.
Funeral Expenses
Reasonable funeral and burial expenses are the first charge on an estate. They are proper even if paid before letters issued, and a family member who advanced them is entitled to reimbursement on producing the bill and proof of payment. “Reasonable” is measured against the size of the estate and the decedent’s station; a beneficiary can object to an elaborate funeral that consumed a small estate, though courts are lenient with funerals. A headstone, a reception on the day of the funeral, and travel by the person arranging the funeral are usually allowed; a memorial trip abroad for the whole family is not. Funeral expenses appear on Schedule C of the account.
Administration Expenses
These are the costs of running the estate, and they are proper whether or not anyone consented to them: court filing fees, certified copies of letters, bond premiums; appraisals of real estate, business interests and tangible property; attorney’s fees and accountant’s fees for estate work; the carrying costs of real property until it is sold or distributed: mortgage payments, maintenance or common charges, insurance, utilities, repairs needed to sell; brokers’ commissions and closing costs on a sale; storage, moving and cleaning out the residence; postage, copying, and the cost of publishing a citation; the cost of preparing the accounting itself.
They appear on Schedule C (paid) and Schedule C-1 (incurred but unpaid). Each needs an invoice. Attorney’s fees paid from an estate are subject to the court’s review under SCPA 2110 on the application of the lawyer, the fiduciary or any beneficiary, and the court may direct a refund of any part it finds excessive. A fiduciary who pays a lawyer without seeing time records is taking on the risk that the fee will be cut and the difference charged back. See attorney’s fee review under SCPA 2110.
Debts of the Decedent
The decedent’s valid debts are paid from the estate: credit cards, medical bills, loans, rent, the last utility bills, a judgment. Creditors have seven months from the issuance of letters to present their claims under EPTL 11-1.5. A claim should be in writing, state the amount and the basis, and be supported; the fiduciary may demand proof by affidavit and may reject a claim that is not proved. Paying a claim without proof, or paying one that was presented late and turned out to be wrong, is at the fiduciary’s risk.
When the estate cannot pay everyone, the SCPA fixes an order of priority: funeral and administration expenses first, then debts entitled to preference under federal and state law, which includes taxes, then judgments and other debts in the order the statute sets. A fiduciary who pays a credit card in full and then finds the estate cannot pay the income tax has paid in the wrong order and is personally liable for the difference. Claims, paid and unpaid, appear on Schedule D with the fiduciary’s position on each.
Example. An estate holds $100,000. The executor pays the $5,000 funeral bill, an $8,000 credit card balance, and $87,000 to a private lender on a student loan. The next spring the decedent’s final income tax return shows $5,000 due with penalties. The funeral was properly paid first. But the tax debt had priority over the credit card and the loan, and the executor, having paid the unsecured creditors before knowing what the estate owed, must pay the tax personally. The lesson is not to hold everything for seven months; it is to know the estate’s liabilities, including the tax returns, before paying the creditors who are least entitled to preference.
Taxes
The estate pays the decedent’s final income tax, any income tax the estate itself owes on income earned during administration, and any federal or New York estate tax. Estate tax appears on its own schedule (Schedule K) with the apportionment among the beneficiaries; the will may direct that the tax be paid from the residue, and if it does not, the statute apportions it among those who received the taxable property. Property taxes on real estate held by the estate are a carrying cost on Schedule C. A fiduciary who distributes before the taxes are settled is liable for them.
Professional Fees
The estate pays for lawyers, accountants, appraisers, brokers and, where needed, investment managers, property managers and investigators. Fees are proper if the work was for the estate and the amount is reasonable for the work. The court’s factors for reasonableness are the time and labor involved, the difficulty of the questions, the skill required, the result, the customary fee for such work, the size of the estate and the lawyer’s experience. A fee that is a percentage of the estate, with no time records, is the kind that gets cut. Fees for work that benefited the fiduciary personally rather than the estate, such as defending the fiduciary’s own misconduct, are not chargeable to the estate.
The Fiduciary’s Commissions
An executor or administrator is entitled to commissions under SCPA 2307, computed on the amounts received and paid out, and they are properly paid from the estate. When they may be taken is the question. Commissions are ordinarily taken on the accounting, when the beneficiaries have seen the computation and released the fiduciary or the court has approved it. They may be taken earlier with the written consent of all the beneficiaries affected or with the court’s approval. Commissions taken along the way without either are not stolen, but they are objectionable, and a court can surcharge interest on them for the period they were held early. The computation appears on Schedule I. See trustee commissions under SCPA 2309 for trusts.
Distributions
Specific bequests and the residue are paid to the beneficiaries from the estate account, and these are the largest payments the account will show. Two timing rules apply. First, creditors have seven months from letters to present claims, and a fiduciary who distributes before then is personally liable if a valid claim comes in and the estate cannot pay it; distributions within the seven months are made, if at all, against a reserve for known and likely claims and a refunding agreement from the beneficiary. Second, a legacy that is not paid within seven months of letters generally carries interest, so unexplained delay in paying a specific bequest costs the estate. Distributions appear on Schedules E and E-1, with receipts.
What Is Not Proper
The following draw objections when they appear on an accounting, and usually a surcharge.
| Payment | Why it is disallowed |
|---|---|
| The fiduciary’s personal expenses | The fiduciary’s own rent, car, meals, travel unrelated to estate business, or a family member’s bills. Estate money paid to or for the fiduciary is presumed improper until documented. |
| Gifts | An executor has no authority to give estate property away, to a beneficiary in advance of their share, to a friend of the decedent who “would have wanted it”, or to a charity the will does not name. |
| Unequal advances | Paying one residuary beneficiary early and not the others. An advance is proper only if it is charged against that beneficiary’s share and the others are protected. |
| Distributions before seven months without protection | Proper only against a reserve and a refunding agreement, and even then at the fiduciary’s risk. |
| The fiduciary’s own claim, paid without care | A fiduciary who was owed money by the decedent, or who advanced expenses, may be reimbursed, but the claim must be disclosed on Schedule D, documented like any other creditor’s, and, if disputed, determined by the court on the accounting rather than paid by the fiduciary to themselves. |
| Payments to the fiduciary’s business or family | Hiring the fiduciary’s spouse as broker or the fiduciary’s own firm as contractor is self-dealing unless the terms were at arm’s length and disclosed. |
| Commingled funds | Estate money run through the fiduciary’s personal account, contrary to EPTL 11-1.6. Every withdrawal from the mixed account becomes suspect. |
| Expenses of litigation the fiduciary lost | A fiduciary who defends an accounting in bad faith, or who litigates a personal dispute with estate money, may be charged with the fees. |
| Loans | Lending estate money to anyone, including a beneficiary, is not an investment an executor may make. |
How Each Item Appears on the Accounting
| Payment | Schedule | What the beneficiary will look for |
|---|---|---|
| Funeral expenses | C | The funeral home bill; reasonableness against the estate |
| Administration expenses | C (paid), C-1 (unpaid) | An invoice for each; nothing personal; no duplicates |
| Attorney’s and accountant’s fees | C, C-1 | Time records; a fee proportionate to the work; no fees for the fiduciary’s personal benefit |
| Debts of the decedent | D | Proof of each claim; the order of payment; the fiduciary’s own claim disclosed |
| Income taxes | C | The returns; penalties for late filing, which are the fiduciary’s fault |
| Estate tax | K | The apportionment among beneficiaries |
| Commissions | I | The computation; the base; when they were taken and with what authority |
| Distributions | E (principal), E-1 (income) | Receipts; equality among residuary beneficiaries; timing against the seven months |
How to build the schedules is covered on our page on preparing a New York estate accounting.
What Happens to Improper Payments
A fiduciary is not required to account until a beneficiary asks, the fiduciary seeks a discharge, or the court requires it, and many estates close on receipts and releases without any payment being questioned. But once an account is delivered or filed, each payment is open to objection under SCPA 2209. The beneficiary identifies the entry and the ground; the fiduciary must then justify it with the records. A payment that cannot be justified is disallowed: the account is restated as if it had not been made, and the fiduciary is surcharged with the amount, plus interest for the time the estate was without the money. Commissions may be reduced or denied where the improper payments amount to misconduct, and a fiduciary who acted in bad faith may be charged with the beneficiaries’ legal fees. In serious cases the court removes the fiduciary under SCPA 711 and 719. See surcharge and objecting to an accounting.
The practical rule for a fiduciary is that every payment from the estate account should be one you would be comfortable explaining to a beneficiary’s lawyer with the invoice in hand. Pay from the estate account only, never from a personal account with reimbursement later; keep every invoice and closing statement; do not advance yourself commissions or reimburse yourself for anything without a receipt; and, when a payment is unusual, get the beneficiaries’ written consent or the court’s approval before making it rather than after.
If you are an executor or administrator with a question about a payment, or a beneficiary who has seen a payment on an accounting that should not have been made, call 212-233-1233 or email [email protected]. We prepare and review accountings in the Surrogate’s Courts of New York City, Long Island and Westchester.
About the Author
Albert Goodwin Esq. is a licensed New York attorney with over 18 years of courtroom experience. His extensive knowledge and experience make him well-qualified to write authoritative articles on a wide range of legal topics. He can be reached at 212-233-1233 or [email protected].
