1. Payment of Debts and Funeral Expenses

1. Payment of Debts and Funeral Expenses

First thing first, the executor/administrator needs to arrange payment or make provisions for the payment of the deceased’s debts, funeral and other expenses in relation to the estate.

Debts

Debts can be incurred both before and after the death of the deceased. For example, the deceased might have used his/her credit card to purchase goods and died before the balance becomes due. An example of a debt incurred after death is the management fee of a property that is owned by the deceased. All debts have to be ascertained and paid, or provisions for payment must be made, before the estate is distributed to the beneficiaries.  The personal representative has to take reasonable steps to make sure that there is no outstanding debt owed by the estate before distribution. The safe way to do so is by advertisement in the Gazette (and newspaper), asking the potential creditors to come forward to the personal representative with the particulars of their claim in at least 2 months’ time: s.29 of Trustee Ordinance (Cap. 29).

Insolvent Estate

“Insolvent” means that the assets of the estate are not enough to pay for the debts of the estate. If the estate is insolvent, the personal representative must take extra care. After settling the funeral expenses and other testamentary expenses, he or she must observe the priority set out in section 63 and schedule 1 of the Probate and Administration Ordinance (Cap. 10) and the Bankruptcy Ordinance (Cap. 6) when he tries to pay off the deceased’s debt.

A failure to observe the proper order can render the personal representatives personally liable. As such, in case of insolvency, legal assistance is advisable.

Maintenance Claim

Note also that there may be claim under Inheritance (Provisions for Families and Dependents) Ordinance (Cap. 481) within 6 months of grant. More specifically, families or dependents of the deceased may claim against the estate if they contend that they should be given a share (if not provided under the will or intestacy) or a large share than the share that they are now given under will or intestacy.

Taxes

If the deceased died before the abolition of estate duty in 2005 and the net value of the estate is over $7,500,000, estate duty is payable. No matter when the deceased dies, an estate will need to provide for salaries tax, profits tax and property tax due by the deceased up to the date of his/her death.

Other Expenses

Other expenses to be paid out of the estate, apart from funeral expenses, include: the expenses incurred for obtaining legal advice, the costs and expenses incurred in the application for the grant of representation and the Court fees.

Timing of Distribution

There is no hard rule. But in general it may be advisable to wait and see if there is any outstanding claim against the estate for a period of 12 months from the deceased’s demise (the so-called “executor’s year”) before full distribution is effected.