Estate administration is a lengthy process. A personal representative (executor) receives authority from the courts. They review financial records and open incoming mail. They secure assets, file tax returns and address financial obligations, including the debts owed by the deceased person and the estate.
Paying those debts typically occurs before a personal representative transfers property to estate beneficiaries or heirs. What debts generally require payment before beneficiaries receive their inheritances?
Most debts take priority over survivors
It is relatively common for estates to be insolvent. The person who died may have more debt than they have property. In that scenario, everything in their estate may go toward settling their financial obligations, with exceptions for personal property that has no resale value.
Personal representatives must allocate funds in the right order of priority. First, they pay all probate and estate administration costs. Then they cover funeral expenses. Tax debts and other government-related financial obligations are the third priority. Any other valid debts, including credit card balances and hospital bills, also require payment with estate resources before beneficiaries can receive their inheritances.
Personal representatives may need assistance identifying creditors and ensuring they properly allocate resources. They can be at risk of removal or even a lawsuit demanding that they take responsibility for the improper allocation and distribution of estate assets.
Mistakes during estate settlement can sometimes lead to financial liability for the personal representative. The estate typically covers the cost of legal representation for the personal representative. Working with an attorney during estate administration can help people avoid errors that lead to litigation and personal financial responsibility.