The debts of an estate (including income tax) must be paid before any beneficiaries receive their money. If an executor ignores the debts and pays the beneficiaries, the executor may be held personally liable for those debts.
If paying the debts first means that the beneficiaries get little or nothing out of the estate, this is not the executor's fault.
Often an executor asks about debts because there are more debts than there are assets in an estate. An executor should a) honestly try to figure out what legally enforceable debts exist, b) be very careful to put appropriate values on estate assets, and c) use the estate assets to pay the debts. Where there is a lot of debt, this usually means selling assets to realize a cash value that can be divided among creditors. If there is not enough money to pay everyone 100% of what is owed to them, the executor may have to try to negotiate a settlement whereby each creditor gets a certain amount on the dollar.
If the estate is fully used up to pay the legally enforceable debts and expenses, and there are still debts of the deceased unpaid, the executor does not have to use his own money to pay them. That's assuming, of course, that the executor has not done anything fraudulent or negligent with the estate's money.
When listing the debts of an estate, the executor should remember to include debts that are not payable immediately but that will become payable in the future, such as income tax at the end of the year.
To protect himself or herself against personal liability, an executor should advertise in the newspaper for creditors and claimants against the estate. Doing so won't overcome any negligence on behalf of the executor, but assuming there is no negligence, advertising for creditors certainly helps.
Hi Lynne,
ReplyDeleteMy dad recently passed away and I came across your website (very well done by the way) when I was doing research. My dad owes a lot of debt and I've also been paying his condo fees, electricity bills, etc. since he had left no will and I cannot sell his property. When I go to repay the debts once I become the executor, can I make it a priority to get my money back first, then pay off the creditors (e.g. credit card companies). Thanks for your help!
Hi Lynne,
ReplyDeleteMy sister and I are equally joint beneficiaries and executrices of my father's will. His entire estate consisted of one R.R.I.F and two small life insurances policies both of which we are equal beneficiaries. There is also a joint bank account (me and my father) with documented survivorship.
If money is paid directly to the beneficiaries of the R.R.I.F and insurance policies and if I can prove ownership of the bank account, what is used to pay his Income Tax owing and any remaining bills. I have been using the joint account for this purpose, but I am now questioning doing this. There is not enough funds in this bank account (and never was enough funds) to pay his taxes owing.
Thanks,
Lena