Serving as the administrator of someone else’s estate is in some ways an honor, but it is also often very stressful. You will have to fulfill financial and legal obligations on behalf of your deceased loved one while also dealing with the demands and wishes of their surviving family members and beneficiaries.
Sometimes, the people handling an estate overlooked a very important aspect of the process, which is the settlement of outstanding debts. Before you do anything else with assets from the estate, you have an obligation to creditors to repay them for money owed by your deceased loved one. Knowing which debts you must pay can help during the estate administration process.
You have to pay debts as a spouse or co-signer
Certain debts involve more than one party acting as the borrower. If you were a cosigner on a loan or credit card, you have the obligation to fully repay the debt even if the other person dies. Creditors may make payment demands if there have been any missed payments, and some may initiate collection efforts.
You will want to treat those expenses as a priority and make sure that they get handled sooner rather than later to avoid collection activity that could impact your credit. It is also possible that, as a spouse, you will be have been financially responsible for the medical care your loved one received prior to their death.
You have to handle any debt secured by personal property
Many major assets serve the dual purpose of benefiting the person who borrows money to purchase said assets and the bank or financial institution that finances the purchases. The item is useful in everyday life, but it also serves as collateral for the money borrowed to make the purchase.
Your loved one will likely want to allocate their major possessions such as their real estate holdings and their vehicle to loved ones. However, if there are any outstanding funds owed against the value of those properties, the balance will have to be paid before the assets get distributed to beneficiaries. In some cases, the best outcome may stem from selling assets and distributing the income among heirs.
Don’t forget about property and income taxes
Just because someone dies doesn’t mean they no longer have an obligation to pay the taxes the government claims against their income. You will need to file a final tax return on behalf of the deceased or ensure that their spouse does so.
Failing to pay income or property taxes during the administration of an estate could mean that the government makes a claim against the beneficiaries or heirs who receive assets. The same is true of other debts that go unpaid. In some cases, unpaid creditors can take legal action against those who receive assets from the estate if debts don’t get paid before the end of estate administration.
