Being named as the executor of an estate can make an already challenging period of grief even more stressful. One of the executor’s duties is to pay the outstanding debts of the estate using the estate’s funds. This is because an individual’s assets and liabilities do not simply vanish after their passing. Rather, their assets transition into what is referred to as the “estate.” The estate can encounter a variety of debts, such as utility bills, mortgages, house or car insurance, taxes, and more.
Together, our experienced New Jersey estate administration attorneys will discuss creditor claims, asset liquidation, personal liability, and more.
Debts That May Not Need to Be Repaid By the Estate
Certain types of debts do not need to be repaid by the estate. For example, some debts follow the associated property, such as a mortgage. In such situations, the individual which inherits the mortgaged property would be liable for the debt, unless the will or trust says otherwise. Others may be forgiven, like student loans (depending on loan conditions).
It’s worth noting, however, if you were an authorized user on the credit card account, different rules could apply. Medicaid debt repayment rules also differ. If the decedent was receiving Medicaid, the state may recover what was paid on their behalf. This is known as estate recovery, which we’ve written about. In these situations, consulting a New Jersey estate attorney can provide clarity.
Claims can come in two forms. There are informal claims, i.e., bills, and formal claims, which are filed during the probate process. It’s rare, but claims can also be made against the beneficiaries. For example, debts such as mortgages can be transferred along with property, allowing creditors to make claims against the benefiting party.
Creditor claims can be made at any time. However, if a claim is made within 9 months of the estate entering probate, it’s possible that the executor could be held personally liable. We’ll discuss this in more detail later.
Settling Claims and Liquidating Assets
It may be necessary to sell the estate’s assets should the estate lack sufficient funds. As an executor, you should delay distributing property until the estate’s debts have been settled. This is related to the issue of personal liability, which we will discuss soon. However, the settling of debts must be accomplished in line with the executor’s fiduciary duty to act in the best interests of the beneficiaries. This is an area where an attorney’s advice can be invaluable.
If the estate lacks funds, even after liquidating assets, you may have to prioritize debts. This could result in lower priority creditors failing to collect their debt. Note that some assets, like jointly held property, cannot be sold to settle the estate’s debts.
As a general rule, executors are not personally liable for the estate’s debts. However, situations arise where the executor can be held liable.
Distributing Assets Before Creditors Could Present Claims
One situation is where the executor has distributed the estate’s assets before creditors had an opportunity to present claims. As stated above, creditors can make claims against the estate at any time. This does not mean, however, that the executor should avoid making distributions indefinitely.
The magic number is nine months. Under New Jersey law, if a creditor makes a claim against the state within nine months of the deceased’s death, the executor can be personally liable for any distributions they made before the 9 month time frame has elapsed. After nine months, creditors may still make claims against the estate, but the executor is no longer personally liable for those disbursements. Thus, we typically advise executors to wait nine months before making final distributions.
Mismanagement of the Estate
Other cases include mismanagement of the estate’s assets causing a decrease in value or paying a lower priority creditor before a higher priority one. In such cases, the executor may be liable for the improperly paid amount or decreased value. This again highlights the importance of seeking an attorney’s guidance throughout the estate administration process.
Often, the executor of an estate is someone who had a close personal relationship with the deceased, such as a spouse. In these cases, it is not uncommon for the executor and the deceased to have incurred debt together. For example, if the executor has co-signed a loan for the decedent or held a credit card jointly with the decedent. Further, if the executor is the surviving spouse of the decedent, they are responsible for debts incurred together that the estate otherwise cannot pay.
Being named executor is a testament to the trust and confidence that the deceased person placed in you. Therefore, it is important to carry out your duties in a way that honors the memory of your loved one. We understand that this process can feel bewildering, especially with the risk of personal liability. As you navigate the process of settling claims and liquidating assets, remember that assistance is available. An experienced New Jersey estate attorney can help you make informed decisions while avoiding liability.
If you have just been named the executor of your loved one’s estate, contact us at The Chamberlain Law Firm today for a consultation by calling us at 201-273-9763. For more estate administration tips, please check out our Insight Articles.
This article is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with a lawyer about the specifics of your case, contact The Chamberlain Law Firm at (201) 273-9763 to schedule a consultation.