Estate Planning

Paying the Debts of an Estate

By Hull & Hull LLP

It is a trite principle of estate administration that "debts must be paid before beneficiaries."  Assuming this maxim is followed, the estate trustee will not assume any personal responsibility for the debts of the deceased. On the other hand, if the estate trustee distributes the estate without due consideration to creditors' entitlements, the estate trustee may be left personally exposed unless the beneficiaries return their entitlement to the estate trustee to fund any unpaid debts.

To be fully relieved from personal liability, the estate trustee must make reasonable efforts to locate and satisfy the creditors of the deceased.  Advertising for creditors is therefore an essential step in protecting the estate trustee from liability and ensuring that the creditors of the deceased have had the opportunity to be paid. But the importance of the advertisement ought not to be overstated.  If an estate trustee can be proven to have had independent knowledge of a creditor who does not claim (for whatever reason) in response to the advertisement, and if the estate trustee distributes in the face of this knowledge, he or she could conceivably be personally responsible to such a creditor.

The bottom line is that the estate trustee, understandably focused on his or her fiduciary duty to the beneficiaries, stands in the shoes of the deceased and must give more than a passing regard to the creditors of the estate.

David M. Smith

David M. Smith - Click here for more information on David Smith.

Full post as published by Toronto Estate Law Blog on February 01, 2010 (boomark / email).