Funeral Expenses and Payment of Debts

Your debts don’t die with you; your estate is still liable for them, and your executor has the authority to pay them off if they are valid and binding.

If your debts exceed your assets, your state law will prescribe the order in which the debts must be paid by category. Funeral expenses and expenses of administration usually get first priority. Family allowances, taxes, and last illness expenses will also appear near the top of the list. If you want certain creditors to be paid off first, ask your lawyer how to ensure that this will happen in light of your state’s particular law.

As for funeral directions and anatomical donations, while you can put them in your will, be aware that the will might not be found or admitted to probate until after you’re buried. It’s best to put these in a separate document (See chapter 26). Some states limit the amount that your executor can pay for your funeral expenses without a court order. If you don’t want your executor asking for court permission to pay funeral expenses, you can waive that requirement in your will.

You can also forgive any debts someone owes you by saying so in your will. (A loan you’ve made is treated as an asset in your gross estate, and may be taxable if the estate is large enough, but the forgiving of the loan will not be taxable to the debtor.)

What If?

In writing your will, you should always play the “what if?” game, and try to figure out where a gift would go if something unexpected happened--then account for that possibility in your will. What if one of your beneficiaries dies before you do? In that event, the gift you made to the dead person is said to lapse (be cancelled), and the gift goes back into your residuary estate (see below), to be distributed to whomever you made the residuary beneficiary.

Most states, however, have anti-lapse statutes that provide that, if a beneficiary related to you predeceases you, that beneficiary’s descendants would receive the gift (particularly gifts of real and personal property). So if you left your shoe collection to your daughter Imelda, and she died before you did, in a state with an anti-lapse statute the footwear would go to Imelda’s descendants. In a state without an anti-lapse statute, it would go to whomever you had named to receive your residuary estate. If Imelda were your best friend and not your daughter, the anti-lapse statute would not apply.

You don’t have to leave all this to the law of your state. Regardless of your state’s laws—lapse or anti-lapse—you can take into account the fact that a beneficiary might die before you by naming a contingent beneficiary. He or she will then get the gift if the primary recipient should die first.