What Expenses Can Be Paid From an Estate During Probate?

Estate Funds Can Pay Legitimate Probate Costs, But The Personal Representative Has To Follow Arizona Law

Grief doesn't stop the bills from arriving. A mortgage may still be due, the house may need insurance and utilities, funeral expenses have to be addressed, and creditors may start asking when they'll be paid.

If you've been appointed to administer an Arizona estate, you generally don't have to pay those expenses from your own pocket. Estate assets can be used for legitimate Arizona probate expenses and properly payable claims.

That doesn't mean the estate checking account can be treated like an ordinary household account. Arizona law gives a personal representative broad authority to manage estate property, but that authority is held for the benefit of creditors, heirs, devisees, and others with an interest in the estate.

Some expenses have statutory priority over others. Some bills shouldn't be paid until their validity or priority has been evaluated. And when an estate doesn't have enough money for everyone, paying the wrong creditor first can expose the personal representative to liability.

Administration Expenses Usually Come First When An Estate Is Short On Money

A.R.S. § 14-3805 establishes the order in which claims must be paid when the estate doesn't have enough applicable assets to pay every claim in full.

At the top are the administrative costs and expenses.

Those can include legitimate expenses incurred in collecting, managing, protecting, and distributing estate property. Depending on the estate, that may involve:

• Court filing and probate fees;
• Publication costs for creditor notices;
• Bond premiums when a bond is required;
• Reasonable compensation for the personal representative;
• Reasonable attorney and accounting expenses incurred in administering the estate;
• Appraisal or valuation expenses;
• Insurance needed to protect estate property;
• Taxes and assessments;
• Necessary costs of maintaining or preserving estate assets; and
• Other reasonable professional services required to administer the estate.

A.R.S. § 14-3715 gives a personal representative authority to insure estate assets, make repairs, pay taxes and assessments, employ attorneys and other professionals, and pay other expenses incident to administration when acting reasonably for the benefit of interested persons.

The personal representative is also entitled to reasonable compensation under A.R.S. § 14-3719.

Attorney's fees deserve an additional distinction. A.R.S. § 14-3720 specifically allows necessary expenses and reasonable attorney's fees when a personal representative or nominee prosecutes or defends a proceeding in good faith, even if that proceeding isn't ultimately successful. That statute shouldn't be read to mean that every legal bill automatically qualifies for payment, regardless of why it was incurred.

Arizona Uses A Six-Level Priority System For Claims

When the estate is solvent, the personal representative may ultimately be able to satisfy all valid obligations. The statutory priority becomes particularly important when the available estate assets aren't sufficient to pay all debts.

Arizona law also provides that a claim within a class doesn't receive preference simply because it became due earlier than another claim in the same class.

That is why a personal representative handling an estate that may be insolvent shouldn't simply pay bills in the order they arrive.

Funeral Expenses Can Be Paid From The Estate

Reasonable funeral expenses are the second category under Arizona's statutory priority system.

The word reasonable matters. The estate may properly pay appropriate funeral, burial, or cremation expenses, but that doesn't mean a personal representative has unlimited authority to spend estate funds on an unusually expensive service when creditors and beneficiaries may be affected.

Arizona law also recognizes that arrangements sometimes have to be made before a personal representative has formally been appointed. A person nominated as personal representative in the will may carry out the decedent's written instructions regarding the body, funeral, and burial before appointment.

The Estate Can Pay Costs Needed To Protect A House Or Other Property

One of the most common practical questions isn't about a credit-card bill. It's what to do with the decedent's home while probate is pending.

Arizona law requires a personal representative to take reasonable steps to manage, protect, and preserve estate property. The personal representative also has statutory authority to insure the estate's assets and to make ordinary or extraordinary repairs when appropriate.

That can make expenses such as these appropriate in the right circumstances:

• Homeowners insurance;
• Property taxes;
• Utilities needed to protect the property;
• Necessary repairs;
• Landscaping or pool service when reasonably needed to maintain property value;
• Security, locks, or other measures needed to protect a vacant residence; and
• Costs associated with preparing estate property for a reasonable sale.

It doesn't follow that every expense associated with the house should automatically continue to be paid.

For example, whether it makes sense to continue making mortgage payments can depend on the property's equity, the estate's available cash, whether the property will be sold, whether someone has a right to receive it, and the lender's secured interest.

A secured creditor's ability to enforce a mortgage, pledge, or other lien also isn't eliminated merely because ordinary probate claim deadlines have passed.

Part of the personal representative's job during Arizona probate is deciding which expenditures actually protect the estate's value, rather than automatically continuing every payment the decedent made during life.

Credit Cards, Personal Loans, And Other Debts Don't Automatically Get Paid First

A bill arriving with the decedent's name on it doesn't give that creditor the right to jump ahead of everyone else.

Credit-card balances, unsecured personal loans, and many other ordinary debts generally fall into the lower-priority claim categories unless some other law gives the particular claim a preference.

The personal representative should also determine whether the claim is valid before paying it. Arizona's probate statutes establish procedures for presenting, allowing, and disallowing creditor claims.

That matters because paying an invalid claim doesn't just reduce an heir's eventual inheritance. If estate funds are limited, it can deprive a legitimate creditor of money that should have been available for a higher-priority or properly allowed claim.

Outstanding debt should therefore be considered as part of the estate's complete financial picture rather than treated as a collection of unrelated bills. Creditor claims can substantially affect what ultimately remains for beneficiaries.

Known And Unknown Creditors Can Have Different Claim Deadlines

The creditor-notice process is another reason not to rush.

Under A.R.S. § 14-3801, the personal representative generally publishes notice to creditors once a week for three successive weeks in a newspaper of general circulation in the county.

That published notice requires creditors to present their claims within four months of the first publication date.

Known creditors must also receive written notice. Their deadline is generally the later of:

• Four months after the published notice, when publication has been given; or
• Sixty days after the written notice was mailed or otherwise delivered.

There are additional limitations and exceptions under Arizona's nonclaim statutes, so the four-month period shouldn't be treated as the only deadline that can ever matter.

A Personal Representative Doesn't Always Have To Wait Four Months To Pay Anything

It's common to hear that an estate can't pay any creditors until the entire claims period has expired. Arizona law is more nuanced.

A.R.S. § 14-3807 allows a personal representative to pay a just claim that hasn't been barred even before the ordinary claims period has ended.

But paying early carries risk.

A personal representative can become personally liable to another allowed claimant who is injured by the payment if the statutory requirements aren't satisfied. Liability can also arise when a payment, through negligence or willful fault, deprives another claimant of the priority that Arizona law gave that claim.

So the better rule isn't “never pay anything early.” It's “know what else may still be coming before spending estate funds that may be needed later.”

The Surviving Spouse And Children May Have Rights Before Ordinary Creditors

Creditor priority isn't the only payment issue a personal representative has to consider.

Arizona law provides several statutory protections for a surviving spouse and certain children.

Under A.R.S. § 14-2402, a surviving spouse is currently entitled to an $18,000 homestead allowance. If there isn't a surviving spouse, the $18,000 allowance is divided among the decedent's minor and dependent children. The homestead allowance has priority over claims against the estate except administration expenses.

A.R.S. § 14-2403 separately provides up to $7,000 in exempt property value for a surviving spouse, or jointly for minor and dependent children if there isn't a surviving spouse. The statute identifies household furniture, automobiles, furnishings, appliances, and personal effects.

There is also a family allowance for reasonable maintenance during administration for a surviving spouse and qualifying children. Unlike the homestead and exempt-property allowances, the statute doesn't establish one fixed dollar amount for every estate.

The family allowance is subordinate to administration expenses and the homestead allowance. The exempt-property rules also have their own priority and abatement provisions.

These aren't ordinary creditor bills. They're statutory rights that need to be accounted for before the personal representative decides how much money is truly available for creditors or eventual distributions.

Beneficiaries Usually Shouldn't Receive Their Inheritance Before The Estate Can Cover Its Obligations

Family members understandably want to know when they'll receive property left to them in a will.

But an inheritance is generally the remainder after the estate has been properly administered, not the first expense the personal representative pays.

Before making final distributions, the personal representative needs to account for valid claims, taxes, administrative expenses, applicable statutory allowances, unresolved claims, and other estate obligations.

Distributing too much too soon can create a serious problem if a valid claim surfaces afterward and there isn't enough money left to pay it.

Choosing someone who understands that responsibility is one reason the selection of an Arizona personal representative matters long before probate begins.

Personal Expenses Don't Become Estate Expenses Just Because You're The Personal Representative

A personal representative is entitled to reasonable compensation and can be reimbursed for appropriate expenses incurred on behalf of the estate.

That's different from using estate money for personal purposes.

Estate funds generally shouldn't be used to pay:

• The personal representative's unrelated household bills;
• Personal travel that isn't reasonably connected to estate administration;
• Gifts that aren't authorized by the will or applicable law;
• Loans to relatives simply because they need money;
• Early inheritance payments that haven't been evaluated against estate obligations; or
• Expenses that benefit the personal representative personally without a legitimate estate purpose.

When the personal representative has personally advanced money for a legitimate estate expense, reimbursement may be appropriate. Receipts, invoices, explanations, and records should be kept so the estate can show what was paid and why.

An Improper Payment Can Create Personal Liability

A personal representative is a fiduciary. That means the person isn't merely helping the family informally. They're exercising legal authority over property that affects other people's rights.

A.R.S. § 14-3712 provides that a personal representative can be liable to interested persons for damage or loss resulting from an improper exercise of estate powers that amounts to a breach of fiduciary duty.

That doesn't mean every good-faith mistake automatically results in a surcharge. It does mean the personal representative shouldn't assume that being a beneficiary, child, spouse, or close relative gives them the freedom to handle the estate's money however the family informally agrees.

Disputes over improper distributions, questionable expenses, or the handling of estate property can also develop into Arizona estate litigation when beneficiaries, creditors, or other interested parties challenge the administration.

Informal Probate Doesn't Mean Every Payment Needs A Judge's Permission

Another common misconception is that the probate judge has to approve every check before it can be written.

Arizona generally gives an appointed personal representative broad powers over estate property. In an unsupervised administration, many ordinary administrative acts can be taken without a separate notice, hearing, or court order.

That flexibility is useful, but it places more responsibility on the personal representative to determine whether an expense is authorized and whether sufficient estate property must be reserved for other obligations.

A supervised probate proceeding can operate differently. Court-imposed restrictions may apply, and a supervised personal representative can't make estate distributions without prior court approval.

Good Records Make It Easier To Show Why An Estate Expense Was Proper

A personal representative shouldn't have to reconstruct two years of transactions from memory at the end of a probate case.

For each significant expense, keep documentation showing:

• Who was paid;
• What was purchased or satisfied;
• When the payment was made;
• Why the expense benefited or was owed by the estate;
• Which estate account supplied the money; and
• Any invoice, receipt, contract, tax notice, or other document supporting it.

This becomes especially important when the personal representative is also an heir. Clear records help distinguish legitimate reimbursement or compensation from an unauthorized personal distribution.

Knowing What The Estate Can Pay Protects Both The Estate And The Personal Representative

The question isn't simply whether an expense sounds reasonable. The personal representative has to consider why the expense is being paid, whether Arizona law authorizes it, whether the claim is valid, what priority it has, and whether enough assets will remain for obligations that may still arise.

That can become difficult when an estate owns real property, has limited cash, faces disputed creditor claims, or may not be able to pay everyone in full.

Our Mesa probate attorneys at The Law Firm of Brown & Jensen help personal representatives identify estate assets and debts, evaluate claims, preserve estate property, account for statutory allowances, and make distributions in the proper order.

Attorney Scott T. Jensen advises clients on probate and estate administration and has counseled hundreds of estate planning clients throughout his career.

If you've been appointed to administer an Arizona estate and aren't sure which bills should be paid, contact us for a consultation. It's easier to evaluate a questionable expense before estate funds leave the account than to try to recover an improper payment afterward.

"I highly recommend Brown & Jensen. I live in Maryland and became the Personal Representative for my cousin's estate in Scottsdale... With Scott's guidance, I was able to successfully manage the completion of all legal steps resulting in the sale of the estate assets... the charges for their services through closing were consistent with those estimated by Scott at our first meeting. I recommend Brown & Jensen, and especially Scott Jensen, for anyone responsible for management and closing of an estate in Arizona." - Karen, ⭐⭐⭐⭐⭐