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Proper handling of estate debt important in estate administration

On Behalf of | Jul 9, 2015 | Probate & Estate Administration |

Estate administration involves many things. One is addressing debt that the deceased still held upon their death. When a person dies while they still hold debt, their estate generally is liable for the debt. There are a variety of different rules regarding the paying off of a deceased’s debts with estate assets.

It is very important for a personal representative of a deceased person’s estate to carefully determine whether the deceased died with any debts. It is also vital for the personal representative to understand and follow the probate rules regarding the debts of deceased persons when going through the estate administration process.    

Why is this so important? It is important because not acting properly regarding debts of the estate during the estate planning process can end up having major personal consequences for a personal representative.

Take the ordering rules regarding the distribution of estate assets for example. Under these rules, estate assets are supposed to go towards paying off debts of the estate before any asset distributions are made to the beneficiaries of the deceased. If a personal representative fails to follow this rule and distributes estate assets to beneficiaries before properly addressing the estate’s debts, they could be exposing themselves to significant liability.

Specifically, they could find themselves personally liable to the deceased’s creditors. Generally, only a deceased person’s estate, not their personal representative, family or loved ones, has liability for the deceased person’s debts. However, this shield from being personally liable for such debts can disappear for a personal representative when they act improperly regarding the handling of debts of the deceased during estate administration.

As this underscores, it is very important for the personal representative of a deceased person’s estate to act properly during the estate administration process. Attorneys can help personal representatives understand what rules they need to follow when managing an estate and help them avoid pitfalls that could expose them to serious personal financial consequences.

Source: CNBC, “Dying with debt can prove costly … for the survivors,” Ilana Polyak, July 6, 2015