I am often asked by clients acting as Executors or Administrators of a deceased Estate how to manage and pay the debts of a deceased Estate.
Before paying the debt of an Estate, an Executor or Administrator should consider the following:
It is important to obtain advice on the above when considering some of the issues below which are faced by an Executor/Administrator.
It is important for an Executor/Administrator to determine the assets and liabilities of the Estate when making a determination to repay an Estate debt. In some instances, parties to whom debts are owed may enter into special arrangements regarding debts owed by the deceased’s Estate.
In most instances, an Executor or Administrator will personally pay funeral expenses after the death of a deceased as there is insufficient time to access the deceased’s funds and funeral insurance plans. If an Executor or Administrator is satisfied that there are sufficient funds in the Estate to reimburse them for the payment of the funeral expenses, then they should proceed with the payment. Further, any party who has paid for reasonable funeral expenses, is entitled to be reimbursed by the Estate for such expenses.
Only an authorised Executor or Administrator who has obtained a Grant of Probate or Letters of Administration should operate an account which is solely in the name of a deceased. The proper course is to close the deceased accounts, and to open an account in the name of the executor as trustee of the deceased estate.
There may be circumstances where a bank will enter into special arrangements with a potential Executor or Administrator to facilitate the payment of the deceased’s bills/accounts, however, this will depend on each bank.
Prior to making any payments, you should consider whether there will be sufficient funds in the account to cover direct debits such as home insurance.
Financial institutions may provide a potential Executor or Administrator with this information. However, any superannuation accounts, life insurance policies, funeral insurance plans and other assets of the Deceased will need to be investigated to form a determination as to whether the deceased will have sufficient funds to pay all of their debts.
If an Executor or Administrator considers that the Estate is insolvent (that is, it has insufficient funds to pay its debts), they should obtain legal advice prior to attending to any payments on behalf of the deceased Estate.
There may be serious implications for an Executor or Administrator if one type of debt is paid in priority to another. This could include the executor being personally responsible for a debt.
If you have been appointed as an Executor or Administrator of an Estate, it is important that you obtain advice in relation to payment of deceased Estate debts. Should you have any questions in relation to Estate Debts, please do not hesitate to contact me.