Can You Be Held Liable If Estate Debts Aren't Paid?

Law Articles

As the executor of a person's estate, you must distribute or dispose of the assets according to the deceased person's wishes. However, there are several things that must be done before you can do that, and one of those things is make sure any taxes or debts are paid. Failure to do this can result in you being required to pay what is owed out of your own pocket. Here is information about how you can minimize your risk of being held liable for another person's debts.

What the Law Says

According to a study conducted by TD Bank, seniors increased their debt load by 15 percent between 2012 and 2013. In general, the executor of a person's estate is not required to foot the bill for the decedent's debts unless he or she is the person's spouse or a cosigner on the debt. If the estate's assets do not cover the total amount of debt owed, then the estate becomes insolvent once all the money is gone. Creditors who are not paid are, for want of a better term, out of luck.

Where you may experience a problem, however, is if you distribute assets to the beneficiaries before paying any debts owed. You are legally required to pay debts before distributing the assets. If you ignore this requirement or don't make a reasonable effort to locate and pay creditors, then those creditors can hold you responsible for the debt left behind by the decedent.

Making Sure Debts Get Paid

The best way to protect yourself is to make sure the bills get paid. The first step you should take is to stop debt from accruing by cancelling or putting holds on accounts owned by the deceased person. You should also minimize the loss of assets by securing them as best as you can. For example, you'll want to cancel the person's credit cards and put valuable jewelry in a safe or safety deposit box.

The next step is to make a list of the person's bills and assets. This will help you get an idea of how much debt the person has and the amount of money available to pay it. If you notice there is more debt than possible income, you'll want to try and pay these types of debt in this order:

• Secured debt such as vehicles and real estate.
• Funeral expenses
• Expenses associated with executing the will such as legal fees
• Legal settlements, orders or responsibilities such as child support or employee wages
• Tax debt. If taxes are not due at the time the person passes away, you'll need to calculate the tax burden and set money aside to pay it when the time comes.
• Unsecured debt

You can also try to negotiate settlements with creditors. If they are aware there isn't a lot of money to go around, they may be more willing to settle for less than what's owed. Be certain to get any agreements in writing and keep the documents in a safe place for future reference.

The biggest challenge you will have is making sure you've notified all of the decedent's creditors about the person's death so they can make a claim on the estate. Even if you're sure you've reached all the companies and individuals the person owed money to, it's a good idea to put a notice in the newspaper.

There is no hard and fast rule about how long the notice should run. However, 30 days should be an adequate amount of time as long as you file the notice before you distribute any assets to beneficiaries.

If you're having difficulty with creditors or you want assistance with executing the estate, you should hire an estate lawyer. An attorney can provide sound advice that will help you protect yourself while you perform your duties as executor of the estate.

6 November 2014