Managing Debt After Death
Posted by Amanda Wojtkowski on May 15, 2025
When a person dies, their debts do not simply disappear. The estate of the deceased is responsible for managing and settling these debts. This article outlines the responsibilities of the estate's executor, the process of handling debts, and the implications for beneficiaries.
Responsibilities of the Executor
- Managing Assets and Debts: The executor or personal representative is responsible for taking inventory of the deceased's assets and debts, evaluating their validity, and determining the order of priority for payment.
- Debt Assumption: In some cases, debts tied to specific assets, such as mortgages, may be assumed by the beneficiary who inherits the asset.
Exempt Assets
Certain assets are exempt from creditors' claims, including:
- Most retirement plan accounts
- Life insurance proceeds received by a beneficiary
- Jointly held property with rights of survivorship
- Assets held in certain irrevocable trusts, depending on the type of trust and jurisdiction
Order of Debt Payment
If the deceased had a will, the estate's assets are used to pay debts in the following order:
- Assets passing under the will's residual clause (remaining assets after other bequests)
- Assets passing under general bequests
- Assets passing under specific bequests
Priority of Debts in Insolvent Estates
If the estate's debts exceed its assets, certain debts have priority. Typically, the order of priority is:
- Estate administration expenses (legal and accounting fees)
- Reasonable funeral expenses
- Certain federal taxes or obligations
- Unreimbursed medical expenses related to the deceased's last illness
- Certain state taxes or obligations (including Medicaid reimbursement claims)
- Other debts
Secured debts, such as mortgages, usually have lower priority because the recipient of the property often assumes responsibility for the debt.
Conclusion
Managing debt in an estate can be complex, especially if the estate is insolvent. Executors should seek professional guidance to navigate the process effectively and ensure compliance with legal requirements.
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Amanda joined the Firm in January 2018 as a tax staff accountant after interning for the Firm in 2017. She is now a manager and specializes in tax compliance for individuals, trusts, and estates, and also provides tax services to privately held businesses and private foundations.