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3 financial liabilities that may arise during estate administration

On Behalf of | Oct 4, 2024 | Estate Planning, Probate & Guardianships

Estate administration is a largely thankless endeavor. The personal representative of an estate must manage assets, communicate with a variety of different parties and follow the instructions provided by the recently deceased individual. They may spend a year or longer carrying out those obligations.

The work involved can cause a lot of stress and might even damage their relationships with people who are unhappy about what they inherit. Not only do they need to perform a significant amount of work, but they also have to be very fastidious in their efforts. Otherwise, they risk opening themselves up to liability. In some cases, outside parties may be able to take legal action against the representative of an estate.

What are the main sources of potential liability for the personal representative of an estate?

Mistakes that cost the estate money

In some cases, the personal representative might sell an asset for less than its fair market value or mismanage resources in a way that results in a lower inheritance for beneficiaries. Beneficiaries and heirs can take legal action against the personal representative of an estate if their behavior diminishes the overall value of the estate and therefore the inheritance they receive.

Private debts that go unpaid

The representative of an estate usually has to fulfill financial obligations with estate resources. Typically, they notify creditors about estate administration and then pay claims before handing out inheritances to beneficiaries. When representatives make mistakes with that process, creditors can sometimes hold them accountable for improperly distributing assets.

Taxes that the estate does not cover

There can be a variety of taxes paid using estate resources. Some people may owe estate taxes because they have property worth millions of dollars. Others may have income taxes due at the time of their passing. Estate resources typically need to cover outstanding tax obligations before a personal representative transfers anything to beneficiaries. In scenarios where they improperly distribute property, tax authorities can hold them personally responsible for the failure to pay taxes with those assets.

Frequently, personal representatives benefit from having legal assistance throughout the process of estate administration. Knowing what responsibilities to address can help to prevent scenarios in which a representative incurs significant financial liability as a result of their role.