FAQ: Payments and Taxes

The executor is not responsible for paying creditors except with estate assets. There are some exceptions, however. An executor can be liable for debts if they cosigned a credit card or loan jointly with the decedent.

Executors can also be liable for debts if they mishandled the estate’s assets and caused them to lose value.

Surviving spouses are responsible for debts incurred with the decedent. For debts the decedent incurred alone, the surviving spouse may or may not be responsible depending on state laws and how the property is held.

When someone dies, taxes are owed for their last tax year. Upon death, an estate is also created which is a separate tax entity. Depending on the income and size of the estate and the decedent’s income, a final federal income tax return will need to be filed and potentially a Federal Fiduciary Income Tax return for the estate, a Federal Estate Tax return, and a Federal Gift Tax return. The executor also needs to file the final state income tax return.

Along with state and federal taxes, the personal representative or executor may also need to pay other final taxes such as real estate taxes, personal property taxes, business taxes, and special assessments.

When the estate has enough assets to pay all debts, the creditors can be paid in any order. It’s not uncommon for there to be insufficient funds and even assets to sell to pay all creditors. In this case, state law specifies the priority of creditors and debts.

Most states use a similar order of priority for the executor to pay debts of the estate:

• Administrative costs are first. This includes court fees, filing fees, and attorney fees.

• Family exemptions. Payments to help family members of the decedent cover living expenses during probate is usually the second priority.

• Funeral and final expenses. There may be a cap on the allowable expenses for burial and funeral costs in some states. This includes the cost for cremation, urns, interment, and a funeral service.

• Government debts. This includes income taxes, property taxes, and estate taxes.

• Final medical expenses. Next is the medical costs associated with the decedent’s final illness or injury which take priority over other unsecured debts like credit card debt.

• Other claims. In most states, there is no priority for other unsecured debts. Sometimes debts are paid based on the date of the claim or debts may be prorated.

Probate goes through specific steps. Creditors must be notified of the decedent’s death and given time to make a claim. The personal representative must pay legitimate claims from the estate before distributing assets and property. Even without an actual claim for repayment, legitimate debts should be paid if the personal representative receives informal claims in the form of bills.

Most claims by a creditor on an estate are informal and in the form of bills. Sometimes creditors make formal claims during probate. All creditors must still be informed of their right to make a formal claim.