Does an Executor Have to Assume Unpaid Debt in Michigan?

By Beverly Bird

The executor of an estate has a great deal of responsibility in Michigan and elsewhere. Personally assuming the decedent's unpaid debts usually isn't required, however. If you ask someone to serve in this capacity and name her as executor of your estate in your will, she has some say over who gets paid and who does not, but she would not have to reach into her own pocket to pay your debts, except in certain rare circumstances.

The executor of an estate has a great deal of responsibility in Michigan and elsewhere. Personally assuming the decedent's unpaid debts usually isn't required, however. If you ask someone to serve in this capacity and name her as executor of your estate in your will, she has some say over who gets paid and who does not, but she would not have to reach into her own pocket to pay your debts, except in certain rare circumstances.

Liability for Debts

Liability for your debts falls to your estate after you die. No one -- not your heirs, beneficiaries or executor -- can inherit responsibility for accounts you contracted for in your name alone. Michigan's Estates and Protected Individuals Code determines the order in which a decedent's debts must be paid from his estate's assets. The list begins with your burial expenses and ends with miscellaneous claims such as consumer debt. Your executor must pay your bills and debts according to the order set out by Michigan law before making distributions to your beneficiaries according to the terms of your will. If she makes early distributions to beneficiaries, she might do so at her own risk. The beneficiaries would have to return them to the estate if the executor runs short of funds before everyone is paid. In such a case, the executor could be personally vulnerable if the beneficiaries do not return the funds and if she did not get written receipts from them when making the early distributions.

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Co-Signed Debts

An exception exists if you co-signed for debts with another individual. If that individual is also your executor, she would be affected by this. Creditors of such joint accounts can pursue your co-signer for payment after you die. The executor can pay off these accounts out of estate funds if she wants to and if your estate has sufficient funds to do so, but she's not obligated to. If she does not, the debt falls to the other party who co-signed on the loan.

Tax Issues

If your estate is large enough to owe estate taxes, your executor might find herself personally on the hook for this debt, but only if she's negligent in her duties. The Internal Revenue Service must prove that she knew the tax debt existed and that she made distributions from your estate to your beneficiaries anyway, without first paying it. She would not be responsible for paying your estate's entire tax debt to the IRS, but only an amount equal to the value of the distributions she wrongly made.

Insolvent Estates

Your property or assets must typically be part of your probate estate before they are vulnerable to your creditors. This normally excludes assets you might leave in trust or that pass to a named beneficiary by operation of law, such as life insurance proceeds or a retirement account. If your debts are such that your probate assets cannot pay them all, your estate is said to be insolvent. Under Michigan law, any assets you placed in trust can become liable for the unpaid balance, but this applies only to revocable trusts; irrevocable trusts are exempt from this rule. After your executor gathers and liquidates all available property from all permissible sources, if she still can't pay all your creditors, they don't receive anything and have no further recourse. They can't pursue the executor personally for payment unless she co-signed with you on the loan before your death.

Executor's Responsibilities

Under Michigan law, your executor must notify your creditors of your death by publication and also send written notice to those she's aware of. Creditors have one month after receiving notice or four months after notice is published, whichever occurs later, to make a claim against your estate for payment. After receiving claims, your executor can decide whether they're legitimate and should be paid or she can deny them. If she denies certain claims, those creditors can file lawsuits against your estate and a judge makes the final decision.

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Can the IRS Come Back for Taxes After the Estate Is Closed?

References

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Estate Laws for Insolvent Estates in Georgia

Georgia law considers a decedent's estate insolvent when the decedent dies without enough money to pay all of his debts, including taxes. As in bankruptcy, Georgia law exempts some assets from creditor attachment. In other words, some assets are not available to creditors to satisfy an estate's debt. Georgia law establishes the order in which debts must be paid from estate assets less exemptions. Each debt must be paid in full before the next in line may be paid. If there are not enough assets left to pay all of the debts remaining, those creditors do not receive payment.

Can an Executor of an Estate Spend Any Money From the Estate?

Executors are allowed to spend estate money as they guide the estate through probate – they just can't spend it on themselves. Probate can be an expensive process, and your executor does not have to pay the costs herself. But if she does occasionally use her own money on behalf of the estate, she's entitled to reimbursement. But it's best to check with an attorney first to make sure she's taking money in the proper way.

What Is an Insolvent Estate?

It's not unusual for someone to have more debts than assets. If this is the case when you die, your estate is insolvent. Your beneficiaries and heirs generally won't inherit your debts, but the executor or administrator of an insolvent estate must take at least one additional step as part of the probate process.

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