Serving as the personal representative of someone’s estate is often a thankless job. While it is common for testators to allocate small amounts of compensation for the person who will handle their estates, that payment often pails in comparison to the work involved.
Estate administration often involves locating and physically securing property, having difficult conversations with family members, spending hours on the phone with businesses and attending hearings in probate court. You will need to maintain careful records of what you do to validate that you have fulfilled your obligations and have complied with the instructions left by the testator.
In addition to all of that work, you also take on a noteworthy degree of personal financial risk. There are two primary ways in which estate administration can lead to financial liability for the representative of the estate. When are your finances at risk as the person administering an estate?
When you don’t retain resources for taxes
The tax obligations of a deceased individual and of the estate itself can sometimes trigger financial liability for the representative of the estate. They will need to file tax returns and hold on to estate assets to pay income taxes on behalf of the deceased. There could also be estate taxes and possibly even income taxes for the estate if they sell estate assets and make more than $600 in profit.
The representative handling the estate has personal financial liability if they fail to fulfill tax obligations, especially if there were at one point sufficient resources in the estate to pay those taxes.
When you don’t pay creditors what they deserve
Individual creditors, ranging from financial companies to the Medicaid estate recovery program, can make claims against the estate. As with taxes owed by the deceased or their estate, if you fail to reserve resources from the estate and instead distribute them to beneficiaries, creditors could hold you accountable for unpaid debts. You aren’t responsible for debts when there aren’t enough assets to repay them, but you are responsible if you distribute assets from the estate while debts remain unpaid.
The best way to protect yourself is to carefully evaluate the financial obligations of the estate and fulfill all of your responsibilities, including filing appropriate tax paperwork and notifying creditors. Learning more about the steps involved in estate administration can help you avoid the risks that come with your position.