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2 serious financial risks to avoid during estate administration

On Behalf of | Apr 15, 2022 | Estate Administration & Probate |

You probably carefully considered the social consequences of serving as an executor before you accepted the position. The size of the estate and the relationship you had with the testator can influence your willingness to take on this substantial responsibility.

Most people recognize that handling the estate of a loved one could strain their relationships with other family members and take up a significant portion of free time for the foreseeable future. They know they will need to call creditors to shut off accounts and make time for probate court proceedings.

Those willing to step into the role of executor often take on the responsibility because they want to see the last wishes of someone they cared about followed properly. However, in your enthusiasm to distribute property the way the testator requested, you could expose yourself to significant financial risk. What are the financial dangers that executors have during estate administration? 

They can be responsible for debts

Technically, the debts an individual owes when they die will pass to their estate. Unless there are co-signers or other borrowers still alive, the estate is the only one financially responsible for those debts.

However, as the executor, creditors could later make a claim against you if you improperly distribute assets. You have to notify creditors of probate proceedings and give them an opportunity to make claims. Failing to follow the right steps and distributing property prematurely could leave you on the hook for some of those accounts.

They can make mistakes regarding taxes

If there is any financial obligation for an estate more important than personal debt, it will be tax liability. The person who died could owe income taxes. If their estate is worth millions of dollars, there could also be estate taxes that apply. When an executor sells estate property, they may also have to pay taxes on that income if the estate earns more than $600.

An executor who fails to file appropriate tax paperwork or retain enough estate assets to cover tax responsibilities could have financial liability for those oversights. Protecting yourself from vulnerability requires that you understand your obligations during the probate process for the estate.