Executor Responsibilities in regard to debts

An executor’s role is to identify estate assets, settle liabilities and distribute remaining property/money in accordance with the will or rules of intestacy.

A person’s debts become the responsibility of the estate upon death and do not simply die with them as is a common misconception. Executors must ascertain what outstanding debts the deceased had at the time of death such as loans and credit card bills.

In order to deal with debts efficiently, executors must contact creditors promptly to inform them of the death. It is likely that the debts cannot be settled until the grant of probate has been obtained and estate assets have been collected. The creditors may have been chasing their money for some time, but it is always helpful for executors to maintain contact with creditors and provide regular updates as they are more likely to respond leniently. All creditors must be paid in full before the estate is distributed to the beneficiaries.

It is important that executors take precaution when administering the estate as failure to pay a creditor can lead to creditors bringing a claim against the executors. This is even if the executor did not know the debt existed.

For estates where there are insufficient funds, the debts must be paid in a specific order and executors must comply with these rules to avoid claims against them. The order of priority is as follows:

1. Secured creditors

2. Funeral expenses

3. Testamentary expenses

4. Preferential creditors

5. Unsecured creditors

6. Interest due on unsecured loans

7. Deferred debts, for example between members of the family

It is vital that executors thoroughly ascertain the debt position of the estate and seek adequate protections when administering the estate.

Source: Sian Kennedy-Brown APS Legal & Associates - April 2022