Know someone over 50 who is making a difference? Nominate them for the AARP Purpose Prize.
by Michael T. Palermo, JD, CFP, AARP, December, 2007
The “pay my debts and taxes” clause is a seemingly innocuous feature in almost every will. It is also a prime example of how easy it can be to foul up your estate plan without realizing it. Here is an example.
Mary, a recently deceased widow, had three children to whom she intended to leave her estate, in equal shares. The estate consists of a $75,000 house and a $25,000 savings account in the name of the decedent alone, plus two $100,000 certificates of deposit. Mary’s simple will gives the house and the savings account to Child A. One of the CDs is payable on death (POD) to Child B, and one is POD to Child C. The decedent understood that POD accounts are non-probate dispositions, so there was no reason to mention them in her will. As far as Mary understood, this simple combination of probate and non-probate dispositions constituted a good estate plan. It would put into effect her desire to give each of her three children equal monetary value—$100,000. So far, so good.
But the estate will have administrative and other final bills and expenses. Where does the money come from to pay them? Mary’s will directs her executor (a son) to “pay my just debts.” So that’s what he must do—pay all the expenses from the cash available to him, which is limited to the savings account in the probate estate. This means, obviously, that all expenses must come out of Child A’s share.
That is not what Mary wanted, yet the executor (no matter who it is) had no choice. Because the CDs left to Child B and Child C were payable on death, they were transferred outside of probate. Those funds were therefore not available to the executor to help pay bills. (The outcome would be even more complicated if the value of the probate estate alone was not large enough to pay a legitimate big claim, such as an unpaid debt of the decedent. In that case, it might be possible under state law for the creditor to recover payment from non-probate beneficiaries such as Child B or C.)
Had Mary recognized the potential problem and obtained good advice, she could have avoided the unfairness of this situation. Of course, if Children B and C want to be fair to Child A, they are free to contribute to the estate’s debts and expenses—but they don’t have to do so.
From “AARP Crash Course in Estate Planning: The Essential Guide to Wills, Trusts and Your Personal Legacy,” by Michael T. Palermo, JD, CFP, 2005, pp. 39-40.
Please leave your comment below.
You must be logged in to leave a comment.
Enter address, city, state, or ZIP code.
Driver Safety (0)
Tax Aide (0)
Entertainment & Dining (0)
Healthcare & Insurance (0)
Financial Services & Insurance (0)
Member Local Offers (0)
Visit the AARP state page for information about events, news and resources near you.
Get tips and resources to protect yourself from fraud and see the latest scam alerts in your state.
Members save 15% on in-store purchases of frozen yogurt, treats and apparel.
Exclusive program for members from The Hartford.
AARP members receive exclusive member benefits & affect social change.
You are leaving AARP.org and going to the website of our trusted provider. The provider’s terms, conditions and policies apply. Please return to AARP.org to learn more about other benefits.
Your email address is now confirmed.
Manage your email preferences and tell us which topics interest you so that we can prioritize the information you receive.
Explore all that AARP has to offer.
In the next 24 hours, you will receive an email to confirm your subscription to receive emails
related to AARP volunteering. Once you confirm that subscription, you will regularly
receive communications related to AARP volunteering. In the meantime, please feel free
to search for ways to make a difference in your community at