Paying the Decedent's Debts, Tax Returns, and Distributing the Estate
If someone dies owing a debt, does the debt go away when they die? No. Generally, the deceased person's estate is responsible for paying any unpaid debts. The estate's finances are handled by the personal representative, executor, or administrator. That person pays any debts from the money in the estate, not from their own money.
Generally, no one else is legally obligated to repay the debt of a person who has died, unless the following situations occur:
- If there was a co-signer on a loan, the co-signer owes the debt
- If there is a joint account holder on a credit card, the joint account holder owes the debt
- If there is a surviving spouse and state law requires the spouse to pay
- In community property states such as Washington State, the surviving spouse may be required to use community property to pay debts of a deceased spouse
Identifying and paying decedent's debts:
The decedent's creditors must be identified and notified of the death. Washington State does not require the executor to publish notice of the death in a local newspaper, but the executor is required to act with reasonable diligence to identify all creditors.
The executor should make a complete list of the decedent's liabilities. Bills and statements you should look for include:
- Lines of credit
- Condominium Fees
- Property taxes
- Federal and state income taxes
- Car and boat loans
- Personal loans, including student loans
- Storage fees
- Loans against life insurance policies
- Loans against retirement accounts
- Credit card bills
- Utility bills
- Cellphone bills
- Medical bills
Valid creditor claims are then paid. The executor will use estate funds to pay all the decedent's debts and final bills, including those that might have been incurred during their final illness.
Preparing and Filing Tax Returns
The executor will file the decedent's final personal income tax returns for the year they died. They will determine if the estate is liable for any estate taxes, and, if so, file these tax returns as well. Any taxes due are also paid from estate funds.
Distributing the Estate
When all these steps have been completed, the executor can distribute what is left of the decedent's assets to the beneficiaries named in the will without a court order if they were given non-intervention powers. If they were not granted non-intervention powers, distributing the assets will require the court's permission, which is typically only granted after the executor has submitted a complete accounting.
If the will includes bequests to minors, a probate guardian ad litem will be required and appointed by the court. In other cases and with adult beneficiaries, deeds and other transfer documents must be drawn up and filed with the appropriate state or county officials to finalize the bequests.
If you need assistance understanding how to pay the decedent's debts, file tax returns, and distribute the estate, reach out to us today. We can help.