E241 What is a Probate Reserve?

<p>Think it’s over? Even when most of probate is complete, the executor must hold a reserve.</p> <h2>Why keep a reserve?</h2> <p><img class="aligncenter size-medium wp-image-11141" src= "https://anthonyspark.com/wp-content/uploads/2021/10/Why-keep-a-reserve-300x169.jpg" alt="Why keep a reserve?" width="300" height="169" /></p> <p>Think of it as a rainy-day fund: An amount of money that the executor holds on to in order to pay unexpected expenses. Even after more than a year, unexpected things pop up - even with experienced attorneys involved. It’s impossible to have full certainty of what the final bills are for the estate without waiting a bit. Creditors, taxes, and accompanying legal/accounting fees can be a big deal. If the executor has no money left in the account, it’s not a good scenario.</p> <p>In Episode 239, we discussed this exact situation. Our client was an executor. He didn’t take our advice to wait for the full tax clearance. Since he didn’t wait and distributed the money to the heirs, they were shocked and horrified to later receive an unexpected tax bill for over $20,000. This put the executor in a tough situation where he either had to ask for money back from the heirs or pay it out of pocket.</p> <p>We had another case where the hospital creditors sued the executor for an unpaid medical bill. In this case, the lawsuit was frivolous. The hospital didn’t formalize their claim, and they were barred by the statute of limitations from being paid. They sued anyway, and the executor had to hire an attorney to defend the estate in court.</p> <p>There was also a case where, long after the estate had been closed, an alleged “son” emerged and sued the estate for his share. The executor had to go through litigation to find out whether this really was the decedent’s son. Obviously, he needed money to pay for legal defense.</p> <p>If you ever run into these situations, and you have a reserve, you’ll be very thankful!</p> <h2>How much is kept in reserve?</h2> <p><img class="aligncenter size-medium wp-image-111