How Does an Executor Pay Off a Decedent’s Debt?
An executor is the person chosen under a will to put the wishes of the deceased person into effect. The will is a plan, and the executor is in charge of making that plan happen. That includes payment of any debts that the deceased person had when they passed.
When a person passes away with estate planning documents in place, an executor is normally named in his or her Last Will and Testament. The courts will appoint a named executor unless there is some issue with the individual named (e.g. he or she does not wish to serve as executor) or a valid objection is made to the appointment.
Once the courts have appointed an executor, the work begins on making the decedent’s plans a reality. This includes collection and protection of estate assets, contact with named beneficiaries and potential heirs, calculation of estate taxes, filing of estate forms, payment of estate tax, response to creditor claims, collection of debts, payment of debts, and more.
Before an executor can distribute assets to beneficiaries, he or she must gather the assets of the estate and pay off the decedent’s debts. Those debts can include anything from personal loans to unpaid credit cards. Meeting the responsibilities of an executorship can be eased significantly if the executor hires an attorney for the estate.
In New Jersey, when an estate does not contain enough assets to meet all of the claims against it, the legislature set out an order of priority for claims against the estate, as follows:
“1. Reasonable funeral expenses;
2. Costs and expenses of administration;
3. Debts for the reasonable value of services rendered to the decedent by the Office of the Public Guardian for Elderly Adults;
4. Debts and taxes with preference under federal law or the laws of this State;
5. Reasonable medical and hospital expenses of the last illness of the decedent, including compensation of persons attending him;
6. Judgments entered against the decedent according to the priorities of their entries respectively;
7. All other claims.”
NJ Rev Stat § 3B:22-2 (2013).
The law in New Jersey sets out specific windows of time in which claims against the estate and responses to those claims must be made. In NJ, creditors have nine months from the death of the decedent to present their claims to the executor in writing and under oath. Some other states have a shorter window. If a creditor misses the time for presentation of a claim, the executor (on behalf of the estate of the deceased person) is not liable to the creditor for any assets “may have delivered or paid in satisfaction of any lawful claims, devises or distributive shares, before the presentation of the claim.” NJ Rev Stat § 3B:22-4 (2015).
If a claim is made within the allotted time, then the executor has three months from being presented with the claim to dispute it by giving written notice. The creditor has three months from receiving notice of a dispute to file a lawsuit against the executor. NJ Rev Stat §§ 3B:22-7; 3B:22-8 (2015).
Reference: nj.com (June 5, 2018) “What happens if executor doesn’t pay off dead person’s debt?”