How Long is an Executor Liable for Debts?

Being named in a will as the executor of a deceased person’s estate is, in many ways, a tremendous honor: You have been identified as someone with the capacity to honestly and faithfully oversee a person’s final mortal wishes.

While most of the responsibilities are straightforward, hazards can present themselves while fulfilling the assignment. At all times, you must make certain you remain well within the legal guardrails.

How long an executor will be on the job (if not personally liable for the deceased’s debts) depends on the prevailing state law, which specifies the time period allotted to creditors to file claims.

What is an Executor of an Estate?

An executor is the person who accepts the challenge of settling a deceased person’s estate. Responsibilities include identifying, collecting, and organizing assets; recording, verifying, and settling debts; distributing assets (if any); and filing the necessary personal and estate tax returns.

Keep this in mind: Accepting the role of executor is purely voluntary. If, for any reason, the nominee believes (s)he is not up to the task, (s)he may decline the assignment.

If your concerns include being held personally responsible for paying off the deceased person’s credit card or other debt, fear not. There may be hazards involved in getting an estate to successful closure, but, as long as the law is followed, the executor will not be held personally responsible for any of the deceased person’s debt.

However, an executor can be held responsible for mistakes made while settling an estate.

Chicago attorney Gordon Hirsch recommends “read the will or trust back and front. Be careful to note every $20 in a wallet to a $200,000 investment portfolio. Don’t get caught early in distributions or forgetting to pay creditor claims, such as could result in personal legal battles or even criminal charges if an employee is suspected of embezzlement.”

Executors who track the procedures laid out by their state’s probate court should not have a problem. With that in mind, executors who are not lawyers or lack extensive training in probate law should, at minimum, consult with an estate lawyer licensed to practice in the deceased person’s state.

The executor is required to make an inventory of the deceased assets (the home, car, bank accounts, etc.) and debts (personal and/or car loan, credit card balance, mortgage, student loans, etc). Any assets must first be used to pay creditors for outstanding debt, with the order determined by state law.

If a car loan is worth less than the car, for example, the car typically would be sold, the car loan paid off and any remaining equity used first to pay the costs of settling the estate and funeral expenses. If there’s money left over, it would be used to pay as much as possible of the credit card balance (assuming there are no other debts that would take priority, such as federal or state tax debt).

Assets can include equity in a house or other real estate, bank accounts, cash on hand, and valuables such as jewelry and coin collections. Typically, assets such as insurance policy proceeds, retirement accounts (401[k]s and IRAs) and brokerage accounts are excluded from collections by creditors.

What Happens to the Deceased’s Debt?

Generally, a person’s debts are not erased by death. Debts remain on the books and, to the extent possible, must be paid from the deceased’s estate. However, by law, neither family members nor a non-relative executor are responsible for satisfying the deceased’s debts with their own money.

Sometimes the deceased’s estate is not sufficiently bountiful to pay creditors all they are owed. When that is the case, the executor informs them of the fact; creditors, in turn, have to write off the unpaid balance as bad debt.

Again, as an executor, you aren’t personally responsible for paying the deceased’s debts, with certain exceptions, such as you cosigned a loan. Or you are a joint account holder on a credit card or some other loan. Do not confuse “joint account holder” with “authorized user.” These are not the same.

A further complication, noted by the federal Consumer Financial Protection Bureau: Some state laws require the estate to pay survivors first; in such cases, there may not be money left to pay outstanding debts.

This is where the “how long is the executor liable for debts” question comes into play. Executors should not rush to pay the deceased’s debts as they pop up or prematurely pay beneficiaries. It can take a while — months, actually — before legitimate creditors establish their claims.

The executor is obliged to know how many months the state allows for creditors to make themselves known. Paying too early and running out of money before the deadline can result in the executor being held personally liable.

What Happens to Credit Card Debt?

Credit card debt survives beyond the grave and typically must be paid off by the deceased’s estate. It is the executor’s responsibility to help pay off those debts where possible.

The impact of these payoffs will, in most cases, be most keenly felt by the beneficiaries of the estate. Generally, when an estate is probated — the legal process that sorts, sells and/or divides assets among heirs — creditors are prioritized. Paying off credit card balances means heirs will receive smaller slices of the estate pie.

Is the Executor Liable for Their Credit Card Debt?

In most cases, the executor does not take on the deceased person’s credit card debt. The exceptions are limited to these:

• The executor is a joint account holder on a card with outstanding debt.
• The executor is a cosigner on the card.
• The executor was married to the deceased and lives in one of the nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin.

These exceptions are not specific to executors; they would apply to anyone who has similar connections to the deceased.

When Might an Executor Take on Debts?

Where the executor can create problems is if (s)he ignores state laws. For instance, the executor sells a car, pockets the difference after the loan is paid off, or distributes it to heirs ahead of other creditors.

“Issues can arise,” says Baltimore-based estate lawyer Ross Albers, “if [executors] neglect to notify creditors of the death as required by law, pay beneficiaries or other expenses before settling outstanding debts, or misuse or mismanage estate funds.”

Failure to follow procedures can lead to disaster for the executor, Albers says, including lawsuits, court-imposed sanctions, or even being stripped of the executor role.

Albers recalls an estate where the executor, a relative of the deceased, distributed assets to all the heirs before satisfying a significant medical debt. The creditors sued the executor, and a lengthy legal battle ensued. Ultimately, the executor was forced to liquidate personal assets.

This led, Albers notes, to “strained family relationships because [the executor] had to ask beneficiaries to return some of their inheritance (which, unsurprisingly, they refused).”

Properly managing assets is essential, attorney Hirsch says, recalling the trouble that erupted when an executor attempted to keep a rare coin collection for himself, rather than selling it to cover debts.

“The executor ended up with beneficiaries coming after him on the grounds of some fair share,” Hirsch says. “They lost their executor position.”

Executors also must be mindful of the hierarchy of creditors. Although all will be clamoring to be paid, state law decides which creditors come first. Executors who violate the order of creditors may find themselves on the hook for unpaid balances.

As mentioned above, because you can be held personally responsible for mistakes made in settling the estate, it is advisable to seek the assistance of an attorney trained in wills and estates.

Preventing Debt

Executors prompted by all these complicated scenarios to review their own financial choices are in a position to get ahead of the game.

The best way to avoid having an estate encumbered by debt is by taking charge of debts long before death. Without question, effective budgeting, spending within your means, saving and investing are all parts of a financial strategy that will make your life more enjoyable.

And when you have gone to your eternal reward, your wise fiscal management will maximize the financial security you want your heirs to enjoy.

Here are a couple of simple ways to help preserve your estate for your heirs.

• Life insurance is one way to help clear up debts left behind when a person dies. Protections also include replacing income, covering funeral costs, and providing an inheritance. Also, life insurance proceeds typically cannot be attacked by creditors.
• People experiencing trouble managing their budgets and debt have an alternative to going it alone: Nonprofit credit counseling can help consumers learn fresh, effective strategies for rising above a paycheck-to-paycheck existence.
• Understand the laws regarding spouses and credit card debt. Depending on the circumstances, spouses may be exempt from having to pay off credit cards held in their late partner’s name alone.