Frequently, testators establishing estate plans allocate resources as compensation for their personal representatives. The people who administer an estate take on a lot of work and may spend a year or longer fulfilling their duties. What they receive in exchange for those services may often seem like a pittance.
In some cases, people who agree to serve as personal representatives during estate administration could be at risk of losing money because they accept that role. Personal representatives may have financial liability during and after estate administration. They may need help throughout the probate process to limit their risk of making mistakes or oversights that can lead to financial losses.
What types of mistakes could lead to liability for a personal representative?
Tax-related oversights
There are a variety of taxes that may apply during estate administration. For example, personal representatives frequently file income tax returns on behalf of the deceased individual. They may need to use estate resources to pay any outstanding balance owed to the Internal Revenue Service (IRS) and state authorities.
If the estate plan instructs the personal representative to hold an estate sale or if the liquidation of assets is necessary to cover financial obligations, the estate itself could be responsible for income taxes. If the estate is particularly large, then estate taxes may apply. Failing to retain resources to cover those tax obligations could lead to direct liability for a personal representative.
Mistakes when paying debts
The financial obligations of the deceased individual become the responsibility of their estate after they die. The estate may need to pay for their end-of-life medical care, credit card balances and student loans. Particularly in scenarios where the estate may not have enough resources to pay every debt in full, personal representatives need to ensure they follow the right process.
They need to communicate with creditors and pay them in the appropriate order. Otherwise, creditors who do not receive payment through the estate could potentially try to hold a personal representative liable for any amounts improperly distributed during estate administration.
Understanding potential sources of liability during probate proceedings can help personal representatives protect themselves. Securing legal representation is often a key component of minimizing liability during estate administration and probate proceedings accordingly.