Regardless of the size of an estate, certain cash outlays to settle the estate are inevitable. The size of these outlays and the resulting estate shrinkage, however, usually vary with the size and complexity of the estate.
Estate settlement costs can arise from some or all of the following:
1. Final Expenses: Final expenses can include medical, funeral and burial expenses, plus the payment of debts owed by the estate owner.
2. Estate Administration Expenses: The costs to administer an estate may include bonding costs, attorney and/or executor fees, appraisal fees, brokerage or sales fees or commissions, court costs and any costs associated with maintaining or improving estate assets for sale.
3. Taxes: Even estates that escape the federal estate tax may be subject to state death taxes.
Payment of these estate settlement costs can siphon off anywhere from 10% to as much as 60% of an estate's value, considerably reducing the inheritance ultimately received by the heirs.
A solution to the estate shrinkage dilemma is to use life insurance to create a source of funds to pay estate settlement costs, preserving the value of the estate for the heirs.
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