Managing Debts in an Estate: Advice for Executors

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Being appointed executor of a loved one's estate is an honour — and, for most people, entirely new territory. Alongside the emotional weight of the role, executors carry a legal responsibility to identify, verify and settle the deceased's debts correctly. Get it wrong, and you can find yourself personally liable. Here's what every executor needs to know.

Your Duty as Executor

Once you obtain a Grant of Probate (or Letters of Administration if there's no valid will), you become legally responsible for administering the estate — including paying debts before any assets are distributed to beneficiaries. This isn't optional. Distributing the estate before debts are settled is one of the most common — and costly — mistakes executors make.

Step 1: Identify What's Owed

Start by building a complete picture of the deceased's financial position. Common debts include:

• Mortgages and secured loans
• Personal loans and credit cards
• Utility bills and council rates
• Medical and funeral expenses
• Tax debts (income tax and potentially a final tax return)
• Centrelink debts or overpayments

A good starting point is the deceased's mail, bank statements, and any files they kept. It's also worth doing a public notice under the Succession Act — this formally invites creditors to make claims within a set period and gives executors real protection from later, unexpected claims.

Step 2: Understand the Order of Priority

Debts aren't paid on a first-come, first-served basis. There's a legal order of priority, generally:

1. Funeral and testamentary expenses
2. Secured debts (e.g., a mortgage, tied to a specific asset)
3. Unsecured debts (credit cards, personal loans, utility bills)
4. Any remaining gifts to beneficiaries

If the estate can't cover everything, it's considered insolvent, and strict rules govern which debts get paid first. This is a situation where getting legal advice early is essential — paying the wrong creditor first can expose you personally.

Step 3: Watch for Personal Liability

This is where many executors get caught out. If you distribute assets to beneficiaries and a legitimate debt or claim surfaces afterward, you may be personally liable to cover it — even if the oversight was innocent. Publishing the notice to creditors mentioned above, and waiting out the notice period before distributing, is the single best protection available to you.

Step 4: Know What Isn't a Debt of the Estate

Not everything the deceased "owed" needs to come out of the estate. Jointly held debts (like a joint mortgage) generally pass to the surviving co-owner. Some debts may also be covered by insurance — for instance, credit card balance protection insurance, or a mortgage protection policy.

Step 5: Get Advice Before You Act

Executors are often surprised by how personal the risk is — this isn't simply an administrative task. If there's any doubt about solvency, competing creditor claims, or how a particular debt should be treated, speak to an estate lawyer before making payments or distributions.

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If you've been appointed executor and aren't sure where to start, our estate planning team can guide you through the process step by step — from obtaining probate to settling debts and distributing the estate correctly.

Get in touch with Browne Linkenbagh today.

 

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