As an executor it is important to know your legal obligations as, in certain circumstances, an executor may be personally responsible for unpaid estate debts.
An executor must pay the deceased’s legal debts, including income taxes, before giving out the gifts left in the Will. If an executor distributes all of the estate assets to the beneficiaries in the Will before paying legal debts, the executor may be personally liable for the unpaid debts. An executor must ensure all legal debts are paid in full even if it means that the beneficiaries ultimately receive nothing.
It is important to consider whether you as executor will want to advertise in the newspaper for creditors to determine the full extent of the deceased’s debts. Doing so will protect yourself against personal responsibility for unpaid debts provided that you have not otherwise acted fraudulently or negligently.
If an executor is handling an estate where there are more debts than assets, the executor should carefully determine what legally enforceable debts exist and assess the value of the estate assets. Failure to carefully assess the value of the estate assets may also put the executor at risk of being personally responsible for unpaid debts. Usually, an executor in this situation will sell estate assets for their fair market value and use the sale proceeds to pay debts.
An executor handling an estate where there are insufficient assets to pay all of the legally enforceable debts owed should consult with professionals to determine the best course of action. It may be possible to negotiate a payment plan where each creditor gets a portion of the debt owed or it may be necessary to declare bankruptcy on behalf of the estate. If all of the estate assets are used to pay debts and further debts remain owing, the executor is not personally responsible for paying the remaining debts unless the executor behaved fraudulently or negligently in handling the estate.