Do You List a Mortgage Owed to the Estate if You Are the Beneficiary and Executor?

When a person dies, the executor, or person who manages the estate, must deal with two sets of laws. The first is the probate code, which governs how a decedent’s property is distributed. The second is the tax code, as the estate is required to pay a tax on its ability to transfer assets to its beneficiaries. In both situations all assets, including any mortgages owed, must be included in the estate regardless of if you are an executor or beneficiary.

1. Probate Law Basics

   • Estates are governed by probate law, which establishes how wills are created and interpreted as well as how to distribute property in the absence of a will. Probate is a function of state law, so laws can vary based on where you live. In an effort to establish a consistent set of standards, The Uniform Probate Code (UPC) was drafted. As of October 2011, the UPC has been adopted by 17 states and is endorsed by the American Bar Association.

   Estate Defined - Probate

   • The estate of a decedent under probate law is any property the decedent owned at the time of his death. Property, for the purposes of probate, is any real or personal asset in which a person can have an ownership interest. This would include a mortgage, which is a legal document granting the holder an interest in real estate to ensure that a debt is repaid. While some property is excluded from an estate, this exemption is limited to furniture, cars, appliances and personal effects for immediate family.

   Estate Taxes

   • The estate tax is a levy on the value of the decedent’s estate in exchange for the right to transfer that property. The estate tax applies to decedents who had property valued in excess of $5 million. For tax purposes, the estate consists of everything the decedent owned, regardless of whether it is real or personal property, or if it is tangible or intangible. All property is included to the extent that the decedent had ownership in the property. Mortgages included in the estate are recorded on Schedule C of Form 706, or the Estate Tax Return.

   Considerations

   • If you are an executor of a will, consult with a licensed attorney in the area. When preparing the estate tax returns, consult with a certified public accountant to ensure compliance with all federal requirements. This article does not provide specific legal advice; it is for educational purposes only. Use of this article does not create any attorney-client relationship.