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Estate, Powers and Trusts, § 12-1.1: Liability of Distributees and Testamentary Beneficiaries

When a loved one passes away, the executor or estate administrator is responsible for winding up his (or her) affairs. The focus of this probate and estate administration tends to be on the distribution of assets to beneficiaries. However, another significant part of estate administration is dealing with the debts of the estate. Just as the executor is responsible for handling the estate assets, the executor is also responsible for handling estate debts. Furthermore, it is important to understand that the beneficiaries are entitled to receive estate assets to the extent that assets are available after estate debts are paid. If estate debts are still owed after distributions have been to beneficiaries, according to Estate, Powers and Trusts, § 12-1.1- Liability of distributees and testamentary beneficiaries, the beneficiaries may face liability to pay such debts from the distributions they received. To learn more about how estate liabilities are handled, contact a New York estate administration lawyer who understands the intricacies of managing estate debts and claims against an estate.

Estate debts

There are a variety of debts and expenses associated with an estate that must be paid out of estate assets. Common debts and expenses include:

  • Funeral and burial expenses. Expenses associated with the funeral and burial or cremation are typically paid out of the estate.
  • Medical bills. Medical bills associated with the decedent’s last illness, or for nursing home or hospice care.
  • Taxes. The executor must pay federal, state, and estate tax taxes owed by the decedent and the estate.
  • Other debts. Estate debts may also include other debts owed by the estate at the time of his (or her) death such as credit card debt, student loans, and car loans.
  • Estate management expenses. Estate management may require hiring of professionals and incurring other expenses. Such expenses are to be paid from the estate assets.

The executor is entitled to reasonable fees and expenses for managing the estate. However, before the executor’s fees can be paid, the court must approve them. Interested parties such as beneficiaries or heirs have the right to file objections to executor’s fees. If you are an executor, beneficiary or heir and have questions about fees, discuss your concerns with an experienced estate administration attorney in New York.

Creditors must file timely claims

Typically before a decedent’s assets are distributed to the people he or she named as beneficiaries in his or her will, certain liabilities of the decedent’s estate must be paid. Only after those bills are paid is the executor permitted to distribute the remaining assets in the estate to the beneficiaries. If the executor distributes assets to soon and as a result there are not sufficient assets in the estate to pay creditors, the executor may face personal liability.

New York estate law requires that creditors file claims against an estate within 7 months of when the executor is formally appointed. While claims filed after the 7 month mark are not barred, the creditor may have a more difficult time collecting. At any time after 7 months, the executor may be ready to distribute assets. Once the assets are distributed, the creditor can no longer demand payment from the executor. Instead, as described in Estate, Powers and Trusts, § 12-1.1- Liability of distributees and testamentary beneficiaries, the creditor would have to try to collect from those who received distributions from the estate. However, even after 7 months, if the executor was aware of a debt or should have been aware of a debt and still distributed assets, the executor may have breached his (or her) fiduciary duty. If this is the case, the executor should discuss the situation with an experienced New York estate administration lawyer.

Liability of distributees and testamentary beneficiaries

Under § 12-1.1 of New York Estates, Powers and Trusts law, if the assets of the estate are distributed prior to those bills being, those who received distributions are liable for paying those bills. However, the distributees may not necessarily be liable for the entire amount of debt owed by the estate. They may be held liable only up to the amount of the distribution that they received. For example, John Jones left his cousin Harriet $10,000 in his will. The executor paid for John Jones’ funeral expenses and taxes, and then distributed $10,000 to Harriet. The executor then found out that John had $15,000 in unpaid bills. Jones’ creditor could seek to recover from Harriet only up to $10,000.

Related statutory provisions
  1. Order of liability; preferences: Estates, Powers and Trusts, § 12-1.2
  2. Extent of liability; judgment debtor’s right to indemnity and contribution: Estates, Powers and Trusts, § 12-1.3
  3. Action may be joint or several: Estates, Powers and Trusts, § 12-2.2
Estate, Powers and Trusts, § 12-1.1- Liability of distributees and testamentary beneficiaries

(a) Subject to the other provisions of this article, distributees and testamentary beneficiaries are liable, in an action, to the extent of the value of any property received by them as such, for the debts and reasonable funeral expenses of a decedent, the expenses of administering his estate and all taxes for which the estate is liable, which have not previously been recovered from the personal representative or from any other source described in paragraph (b).

(b) No liability may be imposed upon such distributees or testamentary beneficiaries, under paragraph (a), unless plaintiff establishes satisfactorily to the court that he cannot fully satisfy his claim:

(1) Because there is insufficient property of the estate available for such purpose in the hands of the personal representative;

(2) By action against persons prior in liability to the defendant, under paragraph (a) of 12-1.2, because such persons are not amenable to suit in this state, are insolvent or for any other reason cannot be made to answer for their liabilities;  or

(3) By the enforcement, under 3-3.6, of any lien, security interest or other charge he holds against property of the decedent specifically disposed of by will or passing to a distributee, or against the proceeds of any policy of insurance on the life of the decedent payable to a named beneficiary.

Contact the Law Offices of Stephen Bilkis & Associates

If you have concerns related to the liability of distributees and beneficiaries for debt owed by an estate, discuss your concerns with an experienced estate administration lawyer serving New York. The attorneys at the Law Offices of Stephen Bilkis & Associates have years of experience successfully representing clients in complex estate matters and estate litigation. We are here to help. Contact us at 1-800-NY-NY-LAW (1-800-696-9529) to schedule a free, no obligation consultation regarding your case. We represent clients in the following locations: Nassau County, Suffolk County, Westchester County, Bronx, Brooklyn, Long Island, Manhattan, Queens, and Staten Island.

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