Most people facing this job have just been named executor or successor trustee, or have stepped in because someone had to, and are now paying bills from a parent's or spouse's accounts while siblings or other relatives watch. The worry is usually simple and heavy at once: which costs are allowed, what to keep, and how to show later that everything was handled fairly. This page walks through those questions in the order they tend to come up, from what counts as an estate expense to how the records feed into the court's review and the tax returns.
What Estate Expenses Are and Why They Must Be Tracked
Estate expenses are the costs of administering an estate, meaning collecting, protecting and distributing what the person left. They are different from the person's own debts from before the death, such as a credit card balance or a medical bill, though the estate may pay both.
The main categories are:
- funeral and burial or cremation costs
- court costs and filing fees
- compensation for the person handling the estate
- attorney and accountant fees
- upkeep and insurance of estate property
- taxes owed by or on behalf of the estate
The person handling a probate estate is the personal representative, an umbrella term for an executor (the person named in a will) or an administrator (the person the court appoints when there is no will or the named executor cannot serve). The Judicial Council's Duties and Liabilities of Personal Representative (DE-147) says the personal representative becomes "an officer of the court" and must keep "complete and accurate records of each financial transaction affecting the estate." That person answers to the court and to the beneficiaries for what is spent. A successor trustee settling a living trust answers to the trust's beneficiaries in a similar way, usually without a court watching.
Expenses also split by type of property. Real property, meaning land and buildings, brings mortgage payments, property tax, insurance and repairs. Personal property, meaning everything else from furniture to stocks, brings costs such as storage, appraisal and sale costs. The accounting treats the house and the contents differently, so keeping them in separate files helps.
The California Probate Accounting: What the Court Requires
An account is the personal representative's written report to the Superior Court of everything that came in and went out. In a formal probate, the court generally reviews an account before it approves final distribution and closes the estate. Under Probate Code section 10900, an account includes both a financial statement and a report of administration.
The financial statement follows Probate Code section 1061. It states the period covered and gives a summary of all of the following, where they apply:
- property on hand at the beginning of the period
- assets received during the period that were not on hand when administration began
- receipts of income or principal
- net income from a trade or business
- gains on sales
- disbursements, meaning money paid out
- losses on sales
- net loss from a trade or business
- distributions to beneficiaries
- property on hand at the end of the period, at its carry value
Each category points to its own schedule, and the statute says "Total charges shall equal total credits." In plain terms, every dollar has to be traced from where it started to where it ended up.
The report of administration includes a statement of liabilities. Probate Code section 10900 says it shows whether notice to creditors was given, the creditor claims filed (with the filing date, claimant, amount and action taken), and any claims not paid, satisfied or adequately provided for.
The DE-147 form adds that "Your account will be reviewed by the court. Save your receipts because the court may ask to review them." Bank statements, invoices and canceled checks are what make each schedule believable. California law also generally gives beneficiaries a chance to review the account and object before the court approves it.
Which Expenses Are Properly Paid from the Estate
Estate money can generally pay costs that come from settling the estate itself. That includes:
- court costs and filing fees paid to the Superior Court
- compensation for the personal representative, under the basis California law sets
- attorney and accountant fees for the administration
- mortgage, property tax, insurance, utilities and necessary repairs that keep real property in good order while the estate is open
- appraisal costs, including the probate referee's appraisal
- costs of a sale of real or personal property that is authorized
- income tax on estate income and property tax owed on estate property
Approval comes first for some of these. The DE-147 form says the personal representative may reimburse themselves for court costs paid to the county clerk and for the bond premium. A probate referee is a court-appointed appraiser. The form says a referee determines the value of the property unless the court waives the appointment, while the personal representative values certain "cash items."
Compensation for the Personal Representative and the Attorney
Compensation for the personal representative is often one of the larger items in an estate's books. California law sets the basis on which it is figured, so the amount is not simply whatever the personal representative chooses. The same is true of attorney fees for the administration. The DE-147 form adds a timing rule: "Without prior order of the court, you may not pay fees to yourself or to your attorney, if you have one." In practice, that means these fees appear in the records as amounts the court has approved, not as payments made along the way. A probate attorney can explain how the basis California law sets applies to a particular estate.
Costs That Are Not Estate Expenses
Personal costs are not estate expenses. The personal representative's own living costs, or travel that has nothing to do with estate business, come out of their own pocket. The DE-147 form warns that a personal representative who skips required court permission may be removed or "required to reimburse the estate from your own personal funds, or both."
When the estate cannot pay everything, Probate Code section 11420 sets the order. It is quoted below under funeral expenses.
How to Document and Organize Estate Records
Separate money comes first. The DE-147 form says estate money and property must be kept "separate from anyone else's, including your own," in an account whose name "must indicate that it is an estate account." It also says estate accounts must earn interest, except checking accounts used for ordinary administration expenses. That account is usually opened once letters are issued. Letters testamentary or letters of administration are the court's document giving the personal representative authority to act.
From then on, the records that hold up best include:
- Each payment: a receipt or invoice showing the date, payee, amount and purpose.
- A running ledger: every dollar received, such as rent, dividends, interest and sale proceeds, and every dollar paid out.
- Bank statements: reconciled against the ledger each month.
- Real property: property tax bills, mortgage statements, insurance premiums, repair invoices, and contractor bids or contracts.
- Personal property sold: the referee's appraisal, the sale agreement or receipt, and any auction or estate-sale invoice.
- Funeral costs: the funeral home's itemized statement.
- Professional fees: engagement letters, invoices, and canceled checks or wire confirmations.
Filing the papers by category (funeral, court costs, property, professional fees, taxes) makes them easier to match to the schedules in the account.
Hypothetical: a personal representative pays a plumber from the estate account to fix a burst pipe at the vacant house. The invoice goes in the real property file, the check number goes in the ledger, and the bank statement confirms it cleared.
Records are usually kept at least until the court's order of final distribution and the estate is closed. Tax records are kept longer, as the tax section below explains. For the wider sequence of steps, see how to settle an estate.
Funeral Expenses: Payment, Documentation, and Priority
Funeral costs have a recognized place in California's order for paying debts. They are not first on the list. Probate Code section 11420 provides that "Debts shall be paid in the following order of priority among classes of debts":
- expenses of administration
- obligations secured by a mortgage, deed of trust or other lien, so far as the proceeds of that property cover them
- funeral expenses
- expenses of last illness
- family allowance
- wage claims
- general debts
The statute adds two rules. Debts owed to the United States or California that have a legal preference come first as those laws require. And "No debt of any class may be paid until all those of prior classes are paid in full," with debts in a class that cannot be paid in full each receiving a proportionate share. Whether an estate can pay everything depends on what it holds and what it owes.
Family members often pay the funeral home before any estate account exists. In that case, the estate can reimburse the person who paid. The itemized funeral home statement, which lists each service and item separately, and proof of payment support that reimbursement. A pre-need contract, meaning arrangements the person made and may have paid for before death, can change what the estate owes, so it belongs in the file too.
For federal income tax, IRS Publication 559 says funeral expenses cannot be deducted on the decedent's final return or the estate's income tax return. They are deductible only on the federal estate tax return (Form 706).
Tax Records the Estate Must Keep
Taxes often feel like the most intimidating part, especially for someone who never handled a parent's finances. The records are what make the returns possible.
IRS Publication 559 says the personal representative "must file the final income tax return (Form 1040 or 1040-SR) of the decedent for the year of death and any returns not filed for preceding years." The same publication discusses the estate's own income tax return, Form 1041. It also says inherited property is not income, but income the property later produces, such as interest, dividends or rent, is taxable.
In California, the Franchise Tax Board's Estates and trusts page (last updated February 24, 2026) says the executor may have to file Form 541 if any of these apply:
- the decedent was a California resident at the time of death
- gross income is over $10,000
- net income is over $1,000
- the estate has income from a California source
- income is distributed to a beneficiary
The FTB also handles the decedent's final California return. W-2s, 1099s and brokerage statements for the year of death, and income and expense records for every year the estate stays open, support these returns. Date-of-death values matter as well. Under 26 U.S.C. § 1014(a), the basis of inherited property is generally its fair market value at the date of death, subject to the exceptions the section lists. Basis is the starting value used to figure gain on a later sale.
On retention, the FTB page says fiduciaries may request an 18-month limitations period "instead of the normal four years after filing" for a decedent's return, an estate return or a trust return. The request is made in writing.
Property tax brings its own paperwork. Under Rev. & Tax. Code section 480, the personal representative files a change in ownership statement with the county recorder or assessor in each county where the decedent owned real property subject to probate, before or when the inventory and appraisal is filed. The DE-147 form says the inventory is due within four months after letters are first issued. For other transfers at death, including through a trust, the trustee or the person receiving the property files within 150 days after the date of death. A parent-child exclusion from reassessment under Rev. & Tax. Code section 63.2 is allowed only if a claim is filed with the assessor. Reassessment notices and claim forms belong in the property file.
This is information, not tax advice. A CPA, an enrolled agent or a tax attorney reviews income tax, basis and how long a particular estate keeps its records. The county assessor's office handles reassessment and exclusion claims.
Recordkeeping for Trust Administration Without Probate
A revocable living trust lets a successor trustee settle the trust's property without a probate case. A successor trustee is the person named in the trust to take over management after the person who made it dies. No judge reviews each payment, but the records matter just as much. California law generally gives beneficiaries the right to an accounting from the trustee.
The recordkeeping habits described above carry over, with a few trust-specific points:
- the administration account is held in the trust's name, so that payments and deposits are visibly trust business rather than the trustee's own
- records of trust income, trust expenses and distributions, which become the basis of any accounting the beneficiaries request
- date-of-death values for trust assets
- the original trust document and every amendment
For real property held in the trust, the trustee's change in ownership filing follows the trust deadline described in the tax section above. The FTB page notes that a trust return follows the due dates for individuals. For more on who acts in each role, see who settles an estate. Estates that skip probate in other ways are covered under settlement without full probate.
When beneficiaries and a trustee are in conflict, or misconduct is suspected, that is a contested matter. It is handled by an attorney who litigates trust and probate cases.
