WESTWOOD LAW, P.C.
A Guide to Managing Estate Debt
One of the most common concerns for a newly appointed Executor is the deceased’s outstanding debt. Many worry they will be held personally liable for these bills.
The general rule: You are not personally responsible for the decedent’s debts. The estate is the debtor, not you. However, you are responsible for paying those debts in a specific, legal order.
The Priority of Payment: When an estate has limited funds, you cannot pay creditors on a “first-come, first-served” basis. States follow a strict hierarchy of payment. While laws very, the order usually looks like this:
- Administrative Expenses: Court filing fees and legal costs.
- Funeral Costs: Reasonable expenses for the service and burial.
- Taxes: Any federal or state taxes owed.
- Medical Expenses: Costs related to the final illness.
- Secured Debts: Mortgages or auto loans.
- Unsecured Debts: Credit cards and personal loans (typically paid last).
- If you pay a lower-priority debt (like a credit card) and run out of money for a higher-priority one (like taxes), you could be held personally liable for the mistake.
The “Notice to Creditors” Shield
Probate actually protects the estate by setting a “cutoff” date for debt. By publishing a formal Notice to Creditors, you trigger a legal clock. If a creditor fails to file a claim within this window (often 3 to 6 months), their claim is typically barred forever. This allows the remaining assets to be distributed to heirs without the fear of future lawsuits.
Two Critical Rules for Executors
- Never pay out of pocket: Using your own money to pay estate bills complicates the accounting and makes you a creditor of the estate. Always wait for the estate bank account to be funded.
- Verify every claim: Just because a bill arrives doesn’t mean it’s valid. Executors have the right to dispute incorrect or outdated claims before any payment is made.
Navigating debt in probate is about following the court’s timeline and the statutory order of operations. We help Executors manage this process to ensure the estate is settled correctly and protected from unnecessary claims.