When a person dies, their debt does not die with them. It can be a common misconception that the debt is written off but this is for the most part untrue. After someone dies, their estate is handled by one or more executors. Or an administrator if they do not leave a Will. A person’s estate consists of their cash including from insurance, investments, property and possessions.
Executors are under a duty to administer and distribute the deceased’s estate correctly. Many executors underestimate the time investment required and complexity that can arise with many estates. The importance of administering the estate correctly needs to be understood by those appointed, as mistakes can lead to personal liability.
Being an executor doesn't mean you'll be held personally liable for any debts of the estate. However, there are some exceptions and taking on the responsibility does come with some risks.
It is the executor’s responsibility to pay off any debts owed by the estate. After collecting in the deceased’s assets, the executors should begin to settle all outstanding debts. They must pay creditors in full before distributing the estate to the beneficiaries.
If they distribute the estate and leave a creditor outstanding, that creditor may bring a claim against the executors. Not knowing about the debt will not warrant a defence.
If there are insufficient funds to satisfy the deceased’s debts in full, the estate will be insolvent.
Specific legal rules must be followed to determine which creditors are paid first in an insolvent estate. Executors must comply with these rules to avoid personal liability. We strongly recommend seeking professional advice specifically when dealing insolvent estates.
If you are not comfortable with the responsibility of administering an estate or are worried about being held personally liable, you can seek advice from a professional. A professional probate solicitor will be familiar with the administration process and have experience in settling outstanding debts. They will be able to provide you with the reassurance you need that you are fulfilling your duties.
By April Knowles, graduate paralegal