How does an executor manage unpaid debts?

When someone writes a Will, they will appoint executors to administer their estate and carry out their wishes.

When they die, the executors become responsible for managing the person’s assets and distributing them according to the Will – and meeting any liabilities against the estate.

This includes any debt that the person has not paid at the time of their death. Many people assume that unpaid debts are written off, but this is not automatically true.

There is usually a process that executors must follow to satisfy the debt to the best of their ability and that of the estate.

Identifying debts

Executors are responsible for determining the value of an estate to report any Inheritance Tax (IHT) to pay, and this is the point at which any debts need to be identified. These could include:

• Mortgages
• Credit cards
• Personal loans
• Utility bills

This information should be available to the executors from institutions such as banks and other lenders.

Paying debts

The next step is to pay the debts out of the assets within  the estate

Debts are paid before any beneficiaries receive their entitlement, and it is the responsibility of executors to clear any debts before distributing assets.

This can be done using cash from the estate or the sale of assets such as property.

It is not uncommon to have unpaid debts upon your death. Many people have only small amounts that need to be settled, but some may exceed the value of the estate – known as an ‘insolvent estate’.

If debts cannot be paid

Debts should be paid in order of priority until the estate runs out of money. This is typically:

• Secured debts (those against an asset), such as mortgage repayments
• Funeral expenses
• Tax and other priority debts
• Unsecured debts, such as credit cards.

All debts in each category must be paid off before any debt in the next category can be paid. If there are insufficient funds to settle all the debts within a particular category, then the funds will need to be apportioned between each creditor in that category.

If the debt is joint or another person is a guarantor, then the surviving person or guarantor will be liable for the debt. Relatives are usually not expected to repay outstanding debts personally.

Protecting yourself

Creditors sometimes have a limited time to make a claim against the estate. Executors often place a notice in The Gazette and/or local newspaper to inform creditors of the death and invite any claims within a specific period. This can protect the executor from personal liability if debts come to light later.

Also remember that some assets such as life insurance may not form part of a person’s estate for the purpose of repaying debts, so make sure to check before turning an asset over to a creditor.

If you are struggling to pay debts as an executor, a solicitor can help you to prioritise and manage repayments and protect yourself, your loved one and beneficiaries.

For advice on dealing with debts on an estate, please contact the team to speak to our probate and estate administration experts.