Legal Definitions - expenses of administration

Expenses of administration refers to the necessary costs incurred when managing an estate or operating a business. These are the expenditures required to keep things running smoothly and fulfill legal or operational obligations, rather than direct costs associated with producing a specific product or service.

In the context of an estate, these are the costs a representative (like an executor or administrator) must pay to properly manage and settle a deceased person's assets and debts. These expenses can often be deducted from the estate's income, which can reduce its tax liability.

For a business, expenses of administration are the general overhead costs that support the entire organization, rather than being directly attributable to a specific department or product line. These costs benefit multiple parts of the company and are essential for its overall operation.

Examples:

• Estate Example: Valuing Unique Assets

  Imagine an estate that includes a rare collection of vintage comic books. The executor, responsible for managing the estate, hires a professional appraiser specializing in collectibles to accurately determine the market value of the comic books. This valuation is crucial for probate, tax purposes, and eventual distribution or sale.

  How it illustrates the term: The fee paid to the appraiser is an expense of administration because it's a necessary cost incurred by the executor to properly manage and value an asset within the estate, fulfilling their administrative duties. It's not a debt of the deceased but a cost of the administration process itself.

• Business Example: Corporate Headquarters Utilities

  A national retail chain operates numerous stores across the country, but its central management, human resources, and finance departments are all located in one corporate headquarters building. The monthly electricity, water, and heating bills for this headquarters building are significant.

  How it illustrates the term: These utility bills are expenses of administration because they are essential overhead costs for the entire company's operations. They support the administrative functions that enable all the retail stores to operate, rather than being directly tied to the cost of goods sold in any single store.

• Business Example: Company-Wide Software Licensing

  A technology company develops several different software products, each with its own development team. However, the company pays an annual subscription fee for an enterprise-wide customer relationship management (CRM) system that is used by its sales, marketing, and customer support teams across all product lines.

  How it illustrates the term: The annual CRM software license fee is an expense of administration. It's a cost that supports the general operation and coordination of the entire business, benefiting multiple departments and product teams, rather than being a direct cost of developing any one specific software product.