It is a common question: “What happens to outstanding debts when we die?” One of the most important steps in the probate process involves determining the outstanding debts of the decedent and ensuring they are paid. Along with marshaling the decedent’s assets, their debts must also be marshaled in order to account for any unpaid loans, medical bills, credit card bills, or other types of debt.
Who is Responsible for Determining the Debts of an Estate?
When a decedent leaves behind debts, it is the responsibility of the executor or administrator to ensure they are accounted for and satisfied. This can be a simple or complicated process, depending on the amount and types of debt left by the decedent. Once the administrator has made an inventory of the estate’s debts, they can move on to determining their validity and how they should be satisfied.
How are Debts Determined?
Many of the debts that need to be accounted for will be outlined in the decedent’s Will. The administrator may also look through the decedent’s bank account transactions and incoming mail to identify any recurring payments such as loans or credit card debt. The smaller debts will be easier to pay first in priority order, such as typical household bills. However, if the decedent has larger debts, it is best to wait until you are certain the estate can pay for them along with the debts that are of higher priority.
Creditors must come forward with their debts within nine months of the decedent’s passing. These written claims must then be determined to be valid or not. If it is determined that the claim is in fact valid, it is the responsibility of the administrator to see that it is satisfied.
How are the Debts Satisfied?
Estate debts should be satisfied using estate assets and not those of the executor or administrator. Estate debts are not the personal responsibility of the executor, administrator or any beneficiary. There is a predetermined priority order in which debts must be paid. The executor must first pay any funeral expenses and any costs of administration, then debts and taxes to the government, followed by medical expenses, then the rest of the claims.
In the event the estate cannot satisfy all outstanding debts, the estate is insolvent and there is a procedure for settling such an estate. See our blog post on insolvent estates.
If you want to learn more about determining debts as an administrator of an estate or have any other estate administration questions, please do not hesitate to reach out to Ward, Shindle & Hall.