Dealing with debts in a deceased estate is one of the most legally sensitive parts of an executor’s role and one where personal liability is highest. The general principle is that debts must be paid out of the estate before any distribution to beneficiaries, and in a strict statutory order if the estate cannot meet all of them. Executors who distribute too early or in the wrong order can find themselves personally liable to unpaid creditors. Here we explain exactly what you need to know about debts of a deceased estate and how to protect yourself.
Plain-English guide written by Simon Jenkins — covering every stage of the probate process.
What counts as an estate debt
Estate debts include everything the deceased owed at the date of death plus reasonable funeral expenses and the costs of administering the estate. Typical examples are utility bills, credit cards, loans, outstanding tax, care home fees, mortgages and any private debts evidenced in writing. Joint debts, such as a joint mortgage, generally become the sole responsibility of the surviving joint borrower rather than the estate.
The Administration of Estates Act 1925 governs how debts are paid. The statutory order matters most when the estate is insolvent, meaning the debts exceed the assets.
The statutory order of payment
For a solvent estate, all debts are simply paid in full before any distribution to beneficiaries. For an insolvent estate, the order set out in the Administration of Insolvent Estates of Deceased Persons Order 1986 applies. In broad outline it is: secured debts (such as a mortgage) up to the value of the security, funeral and administration expenses, preferential debts, unsecured debts in equal proportion, then deferred debts.
If you suspect the estate is insolvent, stop and take advice before paying anyone. Paying one unsecured creditor in full when another receives nothing exposes the executor personally.
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Protecting yourself with statutory notices
The single most important step an executor can take is to publish statutory notices under section 27 of the Trustee Act 1925. These are notices in The Gazette and in a local newspaper inviting creditors to come forward within two months. Once that period expires, executors can distribute the estate without personal liability for any debt they did not then know about, provided they searched diligently.
Without these notices the executor remains exposed to claims from unknown creditors for many years. The cost of placing the notices is modest, usually under £300, and we always recommend it even for apparently simple estates.
Tax debts and HMRC
The deceased’s income tax and capital gains tax position up to the date of death must be settled with HMRC. The estate itself then becomes a taxable entity during the administration period. Any income earned during administration — interest on bank accounts, rent on a property — must be reported.
Inheritance tax is a separate debt of the estate and must be paid within six months of the end of the month of death. The Inheritance Tax Act 1984 governs the position. 2026 thresholds remain £325,000 nil-rate band plus up to £175,000 residence nil-rate band, with 40% above. Tax must be paid before the grant of probate is issued.
When debts exceed assets
If after taking advice you conclude the estate is insolvent, you can apply to court for an administration order or arrange a quasi-bankruptcy administration. Beneficiaries receive nothing in an insolvent estate. The executor should not pay any beneficiary even a small amount in these circumstances.
Funeral expenses generally rank ahead of unsecured creditors so long as they are reasonable. The GOV.UK guidance on dealing with the estate gives a useful overview. Excessive funeral expenditure in an insolvent estate can be challenged. For more on managing this side of the role see our estate administration guide and the wider probate page.
Frequently Asked Questions
Are family members liable for the debts of a deceased relative?
No. Family members are not personally liable for the deceased’s debts unless they signed as joint borrower or guarantor. The debts are paid from the estate and any shortfall is written off.
How are debts in a deceased estate paid?
Out of the estate’s assets in the statutory order. Secured debts come first up to the value of the security, then funeral and administration costs, then unsecured debts equally. Beneficiaries receive only what remains.
What if the estate cannot pay all the debts?
The estate is insolvent and a strict statutory order applies. Beneficiaries receive nothing. Executors must take advice early to avoid paying creditors in the wrong order and incurring personal liability.
How do executors protect themselves from unknown debts?
By publishing statutory notices under section 27 of the Trustee Act 1925 in The Gazette and a local newspaper. Two months after publication the executor is protected from personal liability for debts they did not know about.
Do debts have to be paid before beneficiaries receive their inheritance?
Yes. Beneficiaries can only be paid out of what remains after all debts, tax and administration costs are settled. Paying beneficiaries too early is one of the most common executor mistakes.
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Written by Simon Jenkins, solicitor and director of Curtis Legal Limited (SRA 167489)
