Detailed Answer
In Kentucky, an executor (also called a personal representative) holds a fiduciary duty to gather estate assets, pay valid debts in the correct order, and distribute any remaining funds to beneficiaries. Before paying any creditor claim, the executor must confirm that the estate holds sufficient liquid assets to honor the claim and to cover other priority obligations.
1. Understand Your Fiduciary Duty
Under KRS 395.005, an executor owes a duty of loyalty and care to the estate. That duty requires you to avoid unauthorized or premature distributions. Paying a creditor without confirming available funds risks personal liability for any shortfall.
2. Inventory and Appraise Assets First
Kentucky law requires executors to file an inventory of all assets within three months of appointment (KRS 395.100). This inventory gives you a clear picture of cash on hand, bank accounts, investments, real property and personal property. Do not rely on informal balances; obtain bank statements and appraisals.
3. Review and Allow Creditor Claims
Creditors must submit claims within six months after the date of first publication of notice to creditors (KRS 395.380). You must examine each claim. Approve valid claims and reject those that are invalid or exceed the estate’s liability.
4. Confirm Liquid Funds Before Payment
Once you approve a claim, verify that the estate has enough cash or easily convertible assets. Kentucky’s order of payment requires priority items—funeral expenses, administration costs, taxes—be paid before general creditor claims (KRS 395.500). Calculate the total of priority obligations, then confirm remaining liquid assets cover general debts.
5. Address Shortfalls or Illiquid Assets
If cash is insufficient, consider selling non-cash assets or requesting court instructions. Under KRS 395.370, you may petition the court for guidance or approval to liquidate property. Do not pay claims until you secure adequate funds or court authorization.
6. Consequences of Premature Payment
Paying a creditor without confirming funds exposes you to personal risk. Beneficiaries or other creditors can sue you for breach of fiduciary duty. Kentucky courts can surcharge (financially penalize) an executor who mismanages estate funds.
Disclaimer
This article is for educational purposes and does not constitute legal advice. Always consult a qualified attorney to address your specific situation.
Helpful Hints
- Keep detailed records of all account statements and appraisals.
- Use a trust or estate bank account to separate estate funds from personal funds.
- Review Kentucky’s probate deadlines in the local court rules.
- File creditor notices promptly after appointment.
- When in doubt, seek court approval before liquidating property or making large payments.