The executor of an estate will need to oversee the payment of claims and debts from the assets of the estate, although the executor is usually not personally liable for them. In some cases, however, the estate may not need to repay a certain type of debt. Some debts are attached to a certain asset in the estate, which means that the debt transfers together with the asset to its new owners. For example, a mortgage attached to real estate likely will be transferred to the new property owner. The estate also may not need to pay back credit card debt in some situations, and student loan debt sometimes is forgiven, depending on the loan terms.
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While it is important to keep up with debt payments, some may not need to be repaid – at least not by the estate. Insurance policies, like health insurance, may also cover certain debts.
Another type of debt that may or may not be due involves Medicaid benefits for which the state is seeking reimbursement. Many people who receive Medicaid do not have enough assets to reimburse the state, and some state laws require reimbursement only from assets that pass through probate. The state likely will not be able to get reimbursement from the estate if the decedent left behind a spouse or a dependent child, or if it would cause an undue hardship.
Formal and Informal Claims
Creditors usually will make informal claims on an estate, which you will receive as bills. You can pay these bills without taking any special steps, and you can leave any automatic deductions to pay bills intact. Occasionally, however, a creditor will make a formal claim during the probate process. You must notify creditors of their right to make claims during this process. Sometimes a creditor also will make a claim against a beneficiary, since estate debts transfer to them in proportion to what they inherited, but this is uncommon.
Issues Involving the Payment of Claims
You may wonder what to do if the estate does not contain enough funds to pay debts. This may require selling assets to generate funds, which is a reason to wait to distribute property until you know that you have enough money to cover debts. If you still do not have enough funds once you have sold the estate’s assets, you can refer to state law to determine which debts have priority. Creditors that have lower priority may not be able to collect. Furthermore, some assets will be exempt from being sold to pay debts, such as property protected by a homestead allowance or a family allowance, or property held in joint tenancy.
Personal Obligations of the Executor
As noted above, you generally are not personally liable for an estate’s debts as the executor. However, there are a few situations in which this rule does not apply. If you cosigned for a loan or held a credit card jointly with the decedent, you may be personally liable for that debt. Or you may be liable for a debt if your careless handling of the estate’s assets caused them to lose value.
If you are the surviving spouse of the decedent, you will be responsible for any debts that you incurred together with the decedent to the extent that the estate cannot pay them. If your spouse incurred the debt on their own, you may or may not be responsible for the debt. This will depend on how you held the property and the law in your state. For example, a community property state may protect the separate property of the surviving spouse while making community property accessible to the estate’s creditors. Property held in tenancy by the entirety is not usually available to pay a decedent’s debts, while property held in joint tenancy may or may not be accessible to creditors.