Paying the Estate’s Bills in the Right Order

The executor opened the deceased’s mail and found three demands waiting.

The first was a funeral invoice. The second was a credit-card statement. The third came from a relative who said the deceased had borrowed $18,000 several years earlier and had never repaid it.

Meanwhile, two beneficiaries were asking when they would receive their inheritance.

There appeared to be enough money to pay everyone, but the house had not been sold, the final tax position was unknown and the alleged family loan was supported by little more than a handwritten note.

The executor’s problem was not simply deciding which bills looked urgent. It was determining which liabilities were valid, which assets were available and whether the estate could afford to pay every obligation in full.

In New Zealand, beneficiaries generally receive what remains after the executor has collected the estate, paid valid debts and expenses, dealt with tax and considered legal claims. An executor who pays beneficiaries too soon, favours one creditor improperly or ignores signs of insolvency can create personal financial risk. citeturn417702search14turn417702search33

The safest approach is to investigate first, classify each liability and pay only when the estate’s overall position is understood.

## Begin With a Complete Financial Picture

Do not start paying every invoice as it arrives.

Create an initial estate balance sheet showing:

### Assets

– Bank accounts
– Investments
– Land and buildings
– Vehicles
– Business interests
– Insurance proceeds payable to the estate
– Refunds
– Money owed to the deceased
– Valuable personal property
– Overseas assets

### Liabilities

– Mortgages and secured loans
– Funeral expenses
– Credit cards
– Personal loans
– Rates and utilities
– Medical or residential-care costs
– Tax
– Business debts
– Guarantees
– Administration expenses
– Legal claims
– Loans alleged by relatives or friends

Record whether each figure is confirmed, estimated or disputed.

An estate that appears wealthy may have little available cash. A house worth $900,000 does not pay today’s funeral invoice if it is mortgaged, occupied or months away from sale.

The executor must distinguish asset value from money that is presently available.

## What Counts as an Estate Debt?

A debt does not disappear merely because the person who owed it has died.

Valid liabilities can include obligations arising from:

– Written loan agreements
– Credit contracts
– Mortgages
– Goods or services supplied before death
– Tax assessments
– Unpaid rent or rates
– Business transactions
– Court judgments
– Enforceable guarantees
– Reasonable funeral arrangements
– Necessary estate-administration work

However, the executor should not accept every demand automatically.

A creditor should be able to identify:

– Who is owed money
– Why the money is owed
– The amount
– When the obligation arose
– Any interest or charges
– Documents supporting the claim
– Payments already received
– Whether security exists

The executor acts for the estate, not for the loudest caller.

## Funeral Costs Usually Require Early Attention

Funeral and burial or cremation expenses commonly arise before probate has been granted or an estate account has been opened.

A financial institution may have a procedure allowing a funeral invoice to be paid directly from a deceased person’s sole account. This does not usually mean the executor receives general access to the account. Instead, the institution may pay an approved invoice directly to the service provider.

Possible requirements include:

– Evidence of death
– The funeral invoice
– Identification for the person making the request
– A copy of the will
– A completed deceased-estate form

The family should avoid assuming that an unlimited or highly elaborate funeral will necessarily be paid from the estate without question.

Funeral expenses should be reasonable in light of:

– The deceased’s wishes
– Family and cultural practices
– The estate’s financial position
– The type of service
– Burial or cremation arrangements
– Transport requirements
– Necessary notices and documentation

Where the estate may be insolvent, unusually expensive choices can create disputes about what should properly be paid.

## Who Is Responsible for Signing the Funeral Contract?

The person who signs the funeral agreement may become personally liable to the provider under the contract, even if everyone expects the estate to reimburse the cost.

Before signing, clarify:

– Who is legally contracting with the provider
– Whether payment is expected from the estate
– When payment is due
– What happens if the estate has insufficient money
– Whether the bank can pay the invoice directly
– Which optional services are included

Do not assume that writing “estate of” beside a signature automatically removes personal contractual responsibility.

Keep the full contract, itemised invoice and proof of payment.

## Funeral Expenses Are Not the Only Early Costs

The executor may also need to arrange immediate payments for:

– Securing the deceased’s home
– Essential insurance
– Animal care
– Emergency property repairs
– Storage of valuable items
– Death certificates
– Probate filing
– Necessary professional advice

These expenses can preserve the estate or allow administration to proceed.

They should still be documented carefully. The executor should retain:

– Invoices
– Receipts
– Payment evidence
– The reason the expense was necessary
– Co-executor approval where appropriate

An expense being urgent does not remove the need for an audit trail.

## Secured Debts Require Special Attention

A secured creditor has rights connected to specific property.

Common examples include:

– A mortgage secured over land
– Vehicle finance secured over a vehicle
– Business lending secured over company or personal property
– A registered security interest

The executor should determine:

– The outstanding balance
– What property secures the debt
– Whether payments must continue
– Whether the asset will be sold or transferred
– Whether insurance must remain in force
– Whether an early repayment fee applies
– Whether the estate has guaranteed someone else’s debt

Do not distribute sale proceeds until the secured debt and transaction costs have been accounted for.

If a mortgaged home sells, the lender will ordinarily be repaid through settlement before the net proceeds reach the estate account.

## Joint Debts Are Not Always Sole Estate Debts

A loan or credit facility may be held jointly with a surviving person.

The executor must review:

– The loan contract
– Ownership of the secured property
– Relationship-property rights
– Contribution history
– Any right of indemnity between borrowers
– Insurance attached to the debt

A surviving joint borrower may remain liable to the lender. That does not always determine how the burden should ultimately fall between the survivor and the estate.

Likewise, a jointly owned home may pass outside the estate while the related mortgage remains a matter requiring careful allocation.

Avoid making assumptions based solely on whose bank account made the repayments.

## Verify Credit Cards and Consumer Accounts

When notified of the death, creditors may close or restrict accounts and calculate the final balance.

Request a written statement showing:

– Balance at the date of death
– Transactions processed afterward
– Interest
– Fees
– Refunds or credits
– Any insurance attached to the account
– The settlement amount

Review post-death transactions carefully.

A recurring payment processed after death may still relate to a valid service, but an unauthorised purchase made using the deceased’s card should not simply be accepted as an estate expense.

Do not continue using the deceased’s card to pay household bills. Arrange new estate payment methods where ongoing services must be retained.

## Private Loans Need Evidence

Claims from friends and relatives can be genuine, but they can also be misunderstood or disputed.

A relative may say:

“I gave your father $20,000 when he renovated the house. He promised to repay me.”

The payment might have been:

– A loan
– A gift
– A contribution toward shared property
– Payment for an ownership interest
– Reimbursement
– Part of an informal family arrangement

The executor should ask for evidence such as:

– Bank-transfer records
– A signed agreement
– Emails or messages
– Repayment records
– Interest calculations
– Accounting entries
– Statements made by the deceased
– Evidence of the purpose of the payment

Do not reject a valid debt merely because it was informal. Equally, do not pay it because the claimant is a trusted family member.

Where the executor is the person claiming repayment, an obvious conflict exists. Independent assessment may be necessary.

## What Is a Creditor Notice?

An executor needs a reasonable method of identifying people who may be owed money.

This can involve:

– Reviewing the deceased’s mail
– Examining bank statements
– Checking loan documents
– Reviewing business records
– Contacting known suppliers
– Checking tax records
– Requesting final balances from institutions
– Considering whether a public creditor notice is appropriate

A creditor notice invites anyone claiming money from the estate to submit details by a stated date.

Publishing a notice is not automatically required in every uncomplicated estate. It may be particularly useful where:

– The deceased operated a business
– Financial records are incomplete
– The deceased borrowed privately
– The executor knows little about the deceased’s affairs
– Several creditors may exist
– The estate has complex or overseas dealings
– Unknown liabilities are a realistic possibility

A notice should not be treated as magical protection. Known debts cannot be ignored merely because the creditor failed to respond to an advertisement.

## What Should a Creditor Claim Contain?

Ask claimants to provide:

– Their full name and contact information
– The amount claimed
– The legal or contractual basis
– Copies of agreements
– Invoices or statements
– Interest calculations
– Evidence of any security
– Payment history
– The date the debt became due

Create a creditor register showing:

| Creditor | Amount Claimed | Evidence | Status | Amount Paid |
|—|—:|—|—|—:|
| Mortgage lender | Confirmed | Loan statement | Payable at settlement | Pending |
| Utility provider | Confirmed | Final invoice | Approved | $420 |
| Relative | Disputed | Bank transfer only | Under review | $0 |

This prevents alleged debts from becoming mixed with confirmed liabilities.

## Do Not Admit a Disputed Debt Casually

An executor should be careful when responding to uncertain claims.

A statement such as “Yes, the estate owes you” may create complications if made before the documents are reviewed.

A more appropriate response may say:

> Your claim has been received and will be assessed as part of the estate administration. Please provide the documents and calculations supporting the amount claimed. No decision regarding acceptance or payment has yet been made.

The executor may need advice about:

– Limitation periods
– Contract formation
– Interest
– Security
– Set-off
– Guarantees
– Whether the claim is against the deceased personally or a company
– Whether the debt has already been forgiven or settled

Neutrality is not hostility. It is part of protecting the estate.

## Tax Must Be Treated as a Liability

The executor may need to address:

– Returns outstanding before death
– The deceased’s final income tax return
– Tax on income received after death
– Rental income
– Interest and dividends earned by the estate
– Business obligations
– Tax consequences of asset sales

New Zealand estates are taxed on income they generate, and an estate earning taxable income may need to file an estate or trust income tax return. citeturn417702search8turn417702search19turn417702search38

Do not distribute all available cash before the final tax position has been calculated or adequately provided for.

Tax can arise after probate and after a property has sold. Retain a suitable reserve for returns, assessments and professional costs.

## Administration Expenses Must Be Reasonable

The estate may properly pay expenses required to administer it, including:

– Court fees
– Legal work
– Accounting
– Valuations
– Property sales
– Insurance
– Storage
– Repairs
– Asset transport
– Necessary searches
– Tax preparation

The executor should not treat the estate as an unlimited expense account.

Questionable costs may include:

– Unnecessary luxury travel
– Personal meals
– Family accommodation
– Excessive renovations
– Work benefiting the executor rather than the estate
– Professional services unrelated to administration
– Unsupported cash reimbursements

The executor should be able to explain how each expense helped preserve, collect, manage or distribute estate property.

## When Can Beneficiaries Be Paid?

Beneficiaries come after proper estate liabilities.

Before making a final distribution, the executor should confirm that:

– Assets have been collected
– Secured debts are addressed
– Funeral expenses are paid
– Administration costs are known
– Tax has been completed or provided for
– Creditor claims are resolved
– Legal claims have been considered
– A reasonable reserve remains
– The estate is solvent

A specific cash gift in the will is not automatically payable ahead of the deceased’s debts.

If estate assets are insufficient, gifts may need to be reduced or fail according to applicable legal rules.

The will cannot require the executor to give beneficiaries property that is needed to meet higher-ranking obligations.

## What Is an Insolvent Estate?

An estate is insolvent when its available property is insufficient to pay its debts, funeral expenses and administration or testamentary expenses in full.

The Administration Act permits an administrator of an insufficient estate to apply its assets according to the priorities that would apply under the deceased-estate insolvency regime, without necessarily being obliged to invoke the full formal process. citeturn417702search0turn417702search9turn417702search11

Once insolvency appears possible, ordinary administration should pause.

Do not:

– Pay beneficiaries
– Pay relatives first
– Repay the executor’s own claim
– Select creditors based on pressure
– Continue unsecured debts automatically
– Sell secured property without understanding the lender’s rights
– Assume every expense ranks equally

The priority rules can be technical and may be affected by security, insolvency costs, funeral and administration expenses, employee claims, tax and other statutory categories.

Professional advice is strongly advisable.

## Why Payment Order Matters

Suppose an estate has $80,000 available but owes:

– $25,000 in funeral and administration expenses
– $40,000 to a secured creditor after the secured asset is dealt with
– $60,000 to unsecured creditors
– $20,000 in beneficiary gifts

The executor cannot simply divide the $80,000 proportionately among everyone.

Beneficiaries may receive nothing because debts and proper expenses must be dealt with first. Certain creditors or expense categories may rank ahead of others.

Paying an unsecured family loan in full before understanding the statutory priorities could reduce the amount available to higher-ranking claims and expose the executor to liability.

## Secured Creditors and Insolvency

A secured creditor may rely on the property securing the debt.

The executor should determine:

– The value of the secured asset
– The balance owed
– Sale costs
– Whether the creditor will enforce its security
– Whether any surplus will remain
– Whether a shortfall becomes an unsecured claim

For example, if a vehicle worth $20,000 secures a $24,000 loan, selling it may leave a shortfall after costs. That shortfall may then need to be treated differently from the secured portion.

Do not pay the full balance from unrelated estate money without understanding the creditor’s security and priority.

## Can the Executor Sell Assets to Pay Debts?

Often, yes.

An executor may need to convert estate property into cash so valid liabilities can be paid.

Possible assets include:

– Investments
– Vehicles
– Personal property
– Business assets
– Land

The will should be reviewed before choosing what to sell. A specifically gifted asset may sometimes need to be sold if the estate lacks enough other money, but the executor should not select it casually when another lawful and fair solution exists.

Obtain reliable valuations and document:

– Why the sale was necessary
– Which alternatives were considered
– The price achieved
– Sale expenses
– How the proceeds were applied

## What if a Beneficiary Pays a Debt Personally?

A beneficiary may pay an urgent estate expense, such as insurance or a funeral deposit.

That payment does not automatically become an extra inheritance.

The beneficiary should provide:

– The invoice
– Proof of personal payment
– An explanation of why it was necessary
– Any agreement or authority
– Details of reimbursement requested

The executor must decide whether the expense was properly incurred for the estate.

If approved, reimbursement should be shown clearly in the estate accounts as repayment of an estate expense, not as a beneficiary distribution.

## Do Not Pay Unverified Family Expenses

Families sometimes submit costs that were partly personal and partly connected to the death.

Examples include:

– Travel to attend the funeral
– Accommodation
– Catering
– Clothing
– Memorial gatherings
– Time taken off work
– Clearing the deceased’s house
– Personal legal advice

Some may be payable if authorised, reasonable and genuinely incurred for estate purposes. Others are personal costs that family members must bear themselves.

The executor should not approve them merely to avoid an uncomfortable conversation.

Ask:

– Who authorised the expense?
– Was it necessary?
– Did it benefit the estate?
– Is there an invoice?
– Is the amount reasonable?
– Does the will address it?
– Would an independent executor have paid it?

## Protecting Yourself as Executor

The strongest protections are procedural.

### Keep estate money separate

Use an estate account rather than a personal bank account.

### Maintain a liability register

Record every confirmed, estimated and disputed obligation.

### Verify claims

Request evidence before admitting or paying debts.

### Retain a reserve

Do not distribute every available dollar while tax, costs or claims remain uncertain.

### Recognise insolvency early

Stop ordinary payments when the estate may be unable to meet all liabilities.

### Record decisions

Keep invoices, correspondence, statements and reasons for disputed payments.

### Obtain advice before choosing creditors

Priority errors can make the executor personally responsible for restoring money.

The executor’s task is not to pay bills as fast as possible. It is to identify what the estate legally owes, preserve enough property to meet those obligations and ensure that each payment is made in the correct order.

## Frequently Asked Questions

### 1. Are funeral expenses paid before beneficiaries?

Yes. Reasonable funeral expenses are estate liabilities and must generally be dealt with before beneficiaries receive the remaining estate. The precise priority becomes especially important if the estate is insolvent.

### 2. Can a bank pay funeral costs before probate?

A financial institution may agree to pay an approved funeral invoice directly from a deceased person’s sole account before probate. Its documentation and payment policies will determine what is permitted.

### 3. Must an executor pay every bill immediately?

No. The executor should first verify the debt, establish whether the estate is solvent and consider the proper payment order. Urgent preservation expenses may require earlier action.

### 4. Should an executor publish a creditor notice?

It may be prudent where financial records are incomplete, the deceased operated a business or unknown creditors are reasonably possible. Publishing a notice does not allow the executor to ignore debts already known about.

### 5. Can an executor reject a family member’s loan claim?

The executor can dispute or request further evidence for an unsupported claim. The decision should be based on documents, transaction history and applicable law rather than family loyalties.

### 6. What happens if there is not enough money to pay all debts?

The estate is insolvent, and statutory priority rules apply. Beneficiaries will ordinarily receive nothing unless a surplus remains after higher-ranking liabilities have been dealt with.

### 7. Is an executor personally liable for estate debts?

Not simply because they accepted the role. Personal liability may arise if the executor pays beneficiaries prematurely, favours creditors improperly, mishandles assets or breaches their administration duties.

### 8. Can estate property be sold to pay debts?

Yes, an executor may need to sell assets to meet valid liabilities. The sale should be properly authorised, reasonably conducted and documented, with the will and the rights of secured creditors taken into account.