Managing someone’s estate is a lot of work. You have to locate their will, secure property, resolve financial matters and distribute property according to state law or their will. You will likely have to sacrifice time at work to attend court or manage estate affairs.
Your actions could also damage your relationship with friends or family members who had disappointed expectations about the terms of the estate. As if all of that weren’t enough, you also have some personal financial risk as the executor or personal representative of an estate.
What financial liabilities from an estate could become your personal responsibility?
Debts that you failed to pay
What happens to a debt after someone dies depends on multiple factors. The first is whether there is a cosigner or secondary borrower. If there is, then that debt will likely become that person’s responsibility. The estate could pay the debt, or it could leave that obligation to the co-borrower or co-signer.
If the deceased is the only borrower, then the estate is responsible to pay the debt. You don’t have to pay debts using your own property when there aren’t enough assets in the estate to cover all of someone’s debts.
However, creditors can hold you personally accountable if you distribute funds or property to beneficiaries without notifying the creditors or paying the debt in full.
Unpaid and unfiled taxes
Tax obligations can significantly reduce the total value of an estate. If the estate is worth millions of dollars, there could be estate taxes that you have to calculate and pay before distributing anything to the beneficiaries.
You will also need to file an income tax return on behalf of the deceased and possibly pay any remaining income tax obligations they had at the time of their death. Finally, when you sell property for the estate, the estate itself may be subject to income taxes. If you fail to file the proper paperwork or retain assets to pay those taxes, you may have the same degree of liability that you would with unpaid debts.
Any improper distribution of assets may make you personally accountable for taxes or debts owed by the deceased or their estate. Learning about the risks involved in probate administration can help you protect yourself while fulfilling someone’s last wishes.