Assets Used to Pay the Debts of an Estate
You may have to pay the debts of an estate. If so, it is important to pay close attention to your loved one’s will, trust, and other estate planning documents. Some decedents leave specific instructions as to how these debts should be paid. In other cases, however, a decedent may have opted to leave out these types of instructions. Regardless of whether the instructions were included, the estate’s administrator must understand the different types of assets used to pay debts of an estate.
Assets Used to Pay Debts of an Estate
A person may not leave instructions in their will as to how to pay their debts for various reasons. Some of these reasons include the following:
- The debts are small in relation to the overall size of the estate.
- All assets are being left to one individual, such as a surviving spouse. Consequently, there are no concerns as to the debts being paid disproportionately from certain assets going to some beneficiaries, but not others.
- The person’s wishes as to how the debts should be paid are in line with California law. As it relates to the order and form of repayment of debts and expenses of an estate.
If your loved one did leave instructions on how their debts should be paid. It is important to note whether liquid, tangible or other types of assets are to be used for repayment. Liquid assets are often used to pay the debts of an estate because they are easily accessible. Some examples include bank accounts, money market accounts, stocks, and bonds. Tangible assets are also used to pay the debts of an estate. Examples may include cars, jewelry, electronics, or musical instruments. These assets must be sold in order to pay the debts. Unfortunately, it can be difficult to obtain full value for the assets if they must be sold quickly to pay the estate’s expenses.
Another common type of asset used to pay the debts of an estate is the proceeds from a life insurance policy. This is the case where your loved one named his or her estate as the beneficiary of the policy. It is important to consult with a tax advisor and probate attorney during the estate administration process, however, because naming an estate as the beneficiary of insurance proceeds can create a need for opening probate and paying certain taxes.
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