Laith Khatib, who regularly contributes to The Law Gazette, specialises in Contested Wills, Trusts and Estates. Recently, he was asked by the publication to contribute his advice on settling estate debts. The following is a summary of his article:
Settling Estate Debt
An executor is the person in charge of administering the estate of a deceased person, and one of their key responsibilities is to ensure that all debts and liabilities of the deceased and their estate are, where possible, paid.
Unfortunately, this is not always a simple task. In some cases, the estate may not be able to settle all of its debts and liabilities in full, and in others unknown creditors may be involved.
To avoid encountering problems when discharging debts and responsibilities, executors should take the following steps:
Be fully-aware of the executor’s duties
Any executor who enters into a contract on behalf of an estate is contractually liable to meet its terms. When this contract involves settling a debt, the cost is recoverable from the assets of the estate. However, if the estate’s value falls short, the executor is then personally liable.
It is essential, then, that an executor does not enter into a contract with debtors unless they have established that the estate is able to meets its obligations.
Executors can protect themselves from personal liability by ensuring that they deal with the estate in the proper manner.
Ascertain the solvency of the estate
Before paying any debts, executors should first attempt to ascertain the solvency of the estate. This can be done using a simple balance sheet. If upon doing this, it seems there is a risk that the deceased’s liabilities outweigh their assets, payments to creditors should be delayed until a clear picture has been established.
When an estate is insolvent, it is essential that the executor should seek specialist legal advice to make sure that creditors are paid in the correct order of priority as no creditor should be paid ahead of others who rank equally or higher.
Fees incurred for seeking professional advice are payable out of the estate, and are considered a priority debt to be paid before most other creditors’ claims.
Identify all debts and liabilities
When administering an estate, executors should make every effort to become aware of all of the deceased’s debts and liabilities.
In most estates, however, it is not possible to be one hundred percent certain that all creditors have been identified. In this case, to protect themselves against unknown claims, executors should place notices under Section 27 of the Trustee Act 1925 in The London Gazette and a local newspaper.
A Section 27 notice offers claimants a 2 month period to contact the executor to register a claim against the estate. Once this time has expired, the executor can then distribute the estate according to the claims they are aware of and hand over the remains to any beneficiaries.
Should any unknown creditors surface after this time, they will have no recourse against the executor but can still pursue beneficiaries.
Understand the risks of not placing a section 27 notice
If an executor does not place a section 27 notice, creditors may be able to enforce a debt against them long after the estate has been distributed. It is therefore vital that a section 27 notice is placed.
Get professional advice
If you are dealing with an estate and have any concerns about your duties and obligations, it’s always best to seek specialist legal advice.
Howells Solicitors has considerable experience in advising executors and specialises in high value, complex and insolvent estates.
Please contact us today on info@howellslegal.com or call 0808 178 2773 if you require any further information.
