As you administer your loved one’s estate, your focus will center on gathering and disbursing their assets. Yet, part of your role also includes taking care of their debts. In some circumstances, these may exceed the value of any assets they held. No matter how much debt your loved one carried, you must deal with it in a straightforward way, right away.
Shared debts versus individual debts
New Mexico is one of nine states following community property laws. This arrangement provides that any shared debt your loved one carried will pass to their surviving spouse or cosigner. Their estate will not pay these. If your loved one carried individual debt, though, their estate holds responsibility for paying it off. Yet it may have insufficient value to do so. In this case, your loved one qualified as insolvent upon their passing, which will wipe out their remaining debts.
Debt payment comes before asset disbursement
You cannot close your loved one’s estate without paying all its debts – including taxes. While you will want to ensure that each beneficiary receives the assets they are set to inherit, these may not pass down if the estate was insolvent. And you cannot avoid paying its debts to guarantee this. Furthermore, if you fail to pay the estate’s debts before disbursing its assets, you may have to cover them out of your own pocket. Because your fiduciary duty requires you to satisfy the estate’s creditors, you will end up responsible for any money owed.
If your loved one’s estate has debts, it is crucial that – as its administrator – you pay these as best as possible. Doing so will keep you from facing legal and financial repercussions. An attorney with experience in estate administration can guide you through the process.