The “deceased estate” is the property and possessions of a deceased person that have monetary values (such as real estate and vehicles, money in bank accounts, stocks and bonds, insurance policies and household items and jewelry). Domestic pets are also included in a deceased estates in Melbourne. They are considered property when distributing the estate. The concept of a deceased will containing valuables to be given to beneficiaries is well-known to most people. It’s less known that, when someone passes away, their debts and liabilities from life must be paid out of the estate. This article provides a general overview of deceased estates, including what’s included and what’s not.
Who is responsible for administering a deceased estate?
When a person passes away, they often leave instructions for their estate in the form a will. Wills are only used to distribute property. Parents will often include in their will instructions regarding the guardianship and care of their minor children. These instructions are not legally binding but merely convey the wishes of the deceased.
In a will, one or more executors should be named to administer the estate of the deceased. The executors are responsible for collecting all assets of the deceased, paying creditors and distributing the remaining assets to beneficiaries.
When someone dies without having a valid will they are said to have died intestate. This can lead to a long, complicated and expensive process to distribute the estate according to the law. The deceased cannot decide on the executor of their estate without a valid will.
What debts are paid from a deceased estate?
The will should include provisions for executors to cover funeral and burial expenses, as well as to discharge debts from the deceased estate. The executor must also make sure that the estate pays any income tax due and that a final tax return is filed. The estate is responsible for paying any tax due on assets liquidated, including superannuation payments and capital gain from the sale of shares or real estate.
In general, the executor pays all the debts of the decedent before any assets can be distributed to the beneficiaries named in the will. The rule is that superannuation benefits and life insurance cannot be used to pay off the debts of a deceased estate. The executor can use all other assets from the estate to pay off debts regardless of what the will says about the distribution of assets. An executor cannot, on this basis, give a gift of mortgage-free real estate to a beneficiary if the estate has other debts that can’t be paid without selling the property.
What happens if the debts cannot be discharged?
In the event that the estate is not large enough to pay all the debts at the time of the death, the executor must follow either the bankruptcy or insolvent estate provisions. The family members are not responsible for the debts of a deceased person unless they were guarantors, co-owners or joint borrowers.
Insolvency and bankruptcy estate provisions require that funeral, testamentary, and administration costs be paid for first. The executor will discharge all current and past taxes, regardless of the instructions left by the deceased in their will. Next, secured debts like home or car loans will be repaid. The deceased estate also makes provision to pay delinquent child maintenance and for ongoing child support payments for dependent children.
If the estate is insolvent, it is most likely that unsecured debts will remain unpaid. Even if the will specifies, for instance, that a debt owed to a relative is to be paid, it will only be paid after secured debts have been discharged. It can be a problem when family members provide substantial unsecured loan towards the purchase or investment of a business. It is for this reason that all family loans must be registered and formalized.