Many of us may wish it were otherwise, but our debts do not disappear when we die. They must be paid by our estates.
If you have been appointed as executor of an estate, this means you will pay these debts out of the estate.
Fiduciary duty
As the executor or administrator of an estate, you have a fiduciary duty to represent the heirs, beneficiaries and creditors of the estate. This means you take an oath of office and you can be held liable if you don’t faithfully represent their interests.
Note that there is no requirement that an executor be a lawyer, accountant or any other type of legal or financial professional. If you are not — and perhaps even if you are — it’s a good idea to seek out help from professionals who have experience in estate administration and know what the work entails.
Does this mean you’re on the hook for the money?
To be clear, neither you nor the beneficiaries of the estate must pay these debts our of your own pockets. As the executor, you pay the debts out of the estate itself.
Typically, this means the executor sets up a new bank account for all the cash assets in estate. The executor pays the creditors and taxes from this account. What is left over goes to the heirs and beneficiaries. If there is a will, it will spell out how to distribute these assets. If there is no will, the distribution must follow the court’s determination of heirs.
In some cases, there is not enough money in the estate to pay the debts. In these cases, the debts typically go unpaid.
