Many people accept the position of estate executor (or personal representative) without realizing the extent of their responsibilities and potential liability.
Estate owners often appoint an executor without carefully considering whether the person can handle the duties and risks of the position.
Estate administration typically is regarded as the process of distributing assets to beneficiaries according to the will and state law.
That is a large part of the position and the intended result.
But there is more to the job.
Liabilities, debts and accounts do not terminate upon the death of the principal. The estate must pay the legitimate obligations of the deceased.
The executor needs to discover credit card balances, medical bills, personal loans, mortgages, vehicle loans, tax liabilities (for all levels of taxes), utility accounts, insurance premiums, subscriptions, professional fees, business obligations, and any other financial liabilities.
Many people have recurring charges that are automatically applied to financial accounts until the executor discovers and cancels them.
Some obligations are discovered only after the estate has been open for some time. That is often the case with payments that recur annually.
In addition, the estate might create new obligations, such as taxes, court fees, professional fees, and others. These must be paid before any assets are distributed.
Many people believe the executor’s responsibility is only to pay bills as they are received and become due.
But an executor is obligated to actively search for the debts and liabilities of the deceased.
An executor also should be prepared for financial institutions and others to decline to provide information until they receive proof of the principal’s death and of the executor’s legal authority.
The obligation to pay can continue even when the creditor does not provide information to the executor.
The executor also must determine which obligations are valid. The estate should pay only legally enforceable and accurate claims.
For these reasons, debts and liabilities can put the executor in a difficult position.
When an executor pays bills or debts that were not legally enforceable or valid, the executor might be liable to the estate’s beneficiaries for wasting or improperly using assets.
If the estate does not have enough money to pay all the debts, creditors could hold the executor liable for paying some creditors and not others.
For example, the executor might promptly pay the first bills that are received only to discover the estate does not have enough assets to pay all the valid claims that eventually are submitted.
Making the executor’s job harder is that while claims are being discovered, beneficiaries often pressure an executor to settle an estate and distribute assets.
Giving in to such pressure can be a big mistake.
An executor becomes personally responsible for the debts if assets are distributed to beneficiaries before all the legitimate claims against the estate have been paid.
These potential liabilities of executors can be avoided. The executor is not personally liable for the deceased’s debts if the executor acted prudently and professionally.
Also, in most cases, a family member is not responsible for the debts of a deceased relative.
The estate owner should be careful to select an executor (or co-executors) who have the time to do the job properly, have agreed to accept the responsibility and have enough experience and intelligence to handle the position.
The executor also should be someone who will not hesitate to seek the opinions of others, especially qualified professionals.
Some attorneys advise executors to retain a portion of the assets in the estate for up to a year after most of the estate has been distributed. This provides a reserve against any late claims.
The estate owner is a key to reducing the executor’s potential risk.
An estate owner should keep good lists and records of debts, recurring payments and other obligations.
The records should be updated regularly, and the executor should know where they are located.
