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Law Lingo: Liability

Welcome to Law Lingo: a monthly blog series brought to you by The Brown Law Firm, LLC that explains estate planning terminologies in simple terms. This month we will explain liability.

Liability can refer to an amount of money that someone owes another person or company. Liability is not limited to money – it can be anything that is owed to someone else. This term often comes into play in estate administration.

Role of the Personal Representative

When a person passes away, their assets must be distributed to others – either as directed in an estate planning document such as a will or trust, or by the courts pursuant to the laws of intestacy if no will or trust was established. However, before the beneficiaries can receive their portions of the estate, any outstanding debts must first be settled and taxes paid. A specific person is assigned the duty of ensuring that all of these liabilities are satisfied. A personal representative (executor, administrator, etc.) can be specifically named in the will or trust. If no person is named – or if the named person is unable or unwilling to handle these responsibilities – the courts will choose someone to fulfill this role based upon the priority of appointment statute.

When a Personal Representative is Not Liable

A personal representative for a deceased person’s estate is not typically personally liable for the debts of the estate. Any bills that need to be paid are deducted from the value of the estate – not from the personal representative’s personal finances. For example, if there is an outstanding credit card bill and the credit card company is demanding payment, the personal representative should never pay that debt from their own finances if they are not personally connected to the account in any way. That payment should come directly from the estate. If there is not enough money in the estate to pay the debts, laws exist that determine which debts will take priority.

There are some situations where the personal representative might use their own money to pay for expenses (such as funeral expenses) if funds are not immediately available. In that case, the personal representative could be reimbursed for those expenses from the estate. However, it is very important that all expenses are carefully documented and receipts retained so proper reimbursement can be given. If it does not appear that the estate will be able to cover the expenses, the personal representative might want to reconsider using their personal finances.

How Personal Liability Can Occur

There other situations where survivors might be liable for the debts of a deceased person:

  • Credit card debt if the deceased had a joint account with a spouse – the spouse might be personally liable for the outstanding debt
  • Cosigners on a loan – the person who cosigned on behalf of the deceased person will be liable for the outstanding debt
  • Inactions, procrastinations or fraud – if the estate loses money or incurs additional debt because of negligence on the part of the personal representative, that person could be held personally liable

Still confused by liability or any other legal terms? The Denver estate lawyers at The Brown Law Firm, LLC are here to help. Contact us at (303) 339-3750 or send us a message online to meet with our experts.