Who is responsible for paying my debts when I die?

October 11, 2022

It can be a difficult period when you lose a family member or friend. If you are an executor or an administrator (personal representative) of a deceased or a family member responsible for arranging the funeral, looking after the financial affairs of the deceased and executing the will, it may be quite overwhelming.

When a bank is notified that a customer has died, the bank will freeze any accounts in the sole name of the deceased customer.  This means that deposits can be made to the accounts but no payments or direct debits can be made from those accounts.

Any joint accounts held by the deceased and another person will become the asset of the surviving joint account holder and can be operated as normal by the joint account holder. Jointly held accounts should not be frozen by the bank on the death of one of the account holders.

If the deceased holds sufficient funds with the bank, the deceased’s bank will pay:

• reasonable funeral costs – the executor named in the will or the person who organises the funeral is responsible for the payment of the funeral account. They may take the funeral account to the deceased’s bank.  The bank will pay the funeral account even if the account has been frozen;
• the outstanding balance of any credit card accounts held by the deceased with that bank; and
• insurances, rates on real property and motor vehicle registration – some banks will pay these expenses on behalf of the estate if requested. We suggest the executor approach the deceased’s bank to enquire if they will pay these expenses direct from the deceased’s bank account on production of a rates notice, invoice from the insurer or registration renewal notice.

All the debts of the deceased and costs of administering the estate are payable from the funds of the estate before the deceased’s assets are distributed to the nominated beneficiaries in their will. These debts include:

• all reasonable funeral costs;
• any costs incurred by the executor in administering the estate, including legal costs and outlays;
• reasonable costs of a headstone or memorial plaque;
• mortgage repayments on any real property owned by the deceased solely;
• any tax liability owed by the deceased as at the date of death and any tax liability incurred by the estate after the date of death;
• accounting fees;
• rates and insurances on any real property owned by the deceased solely;
• registration and insurance on any motor vehicle owned by the deceased solely;
• telephone and electricity accounts; and
• all other existing debts of the deceased at the date of death.

The costs of mourning (which includes the costs of the wake and the costs of travel and accommodation for others to attend the funeral) are not estate expenses unless specifically allowed for in the terms of the will of the deceased.

It is the responsibility of the personal representative (the executor, if there is a valid will, or otherwise an administrator appointed by the Court if the deceased died intestate or without validly appointing an executor in their will) to ensure all the debts of the deceased and costs of the estate are paid.  The legal personal representative is not, however, personally liable for the payment of these debts.  If a personal representative or family member pays any amounts on behalf of the estate, they are entitled to be reimbursed from the financial assets of the estate.

If the financial assets of the estate are not sufficient to satisfy the creditors and costs of the estate (including the payment of the testamentary costs), it will be necessary to sell assets such as real property or shares to cover those costs and liabilities.

If the assets of the estate are not sufficient to pay the creditors and costs, it means the estate is insolvent and it will be necessary for the personal representative to notify any such creditors that the assets of the estate are insufficient to pay the outstanding liabilities.

If the estate is insolvent, the costs of the funeral are the responsibility of the person or persons who organizes the funeral and engages the funeral director.  Similarly, the costs of administering the estate will be the responsibility of the personal representative or the person who undertakes the work or provides the instructions to a professional.

If this information raises more questions for you, or you have further questions, please contact a member of our estate administration team.