In the administration of most estates, the question will arise how are the debts of a deceased person to be paid? If the estate has either cash or other assets that are sufficient to pay the estate’s debts, then it is a solvent estate and section 59 of the Succession Act 1981 Queensland applies. Section 59 sets out the order in which a deceased’s person’s assets are to be used to pay their debts. In general terms Section 59 provides:

1. That any assets of the deceased specifically identified in the will for the payment of debts will be used first.

2. Next will be those assets that fall into the residue of the deceased’s estate. This will be all of the assets of the deceased that have not been specifically gifted in the deceased’s will.

3. If after using gifts specifically identified for the payment of the deceased’s debts and using the residue of the deceased’s estate, there still remains unpaid debts of the estate, then gifts that have been specifically made in the will, will be the next category of the estate’s assets to be used for the payment of estate’s debts.

4. If after assets in categories 1, 2 and 3 above have been used there still remains unpaid debts, then donationes mortis causa can be called upon to pay the remaining estate’s debts. Donationes mortis causa are those gifts that the deceased person made prior to their death.

It is important to note that in calculating the payment of the deceased’s debts, it is not a matter of the executors or administrators simply saying that we only have $200 but we have $400 worth of debts, therefore we will spend the $200 paying 100 percent of the following debts and the other unpaid debts will miss out. Instead, what occurs is a pro rata calculation so that the amount of money available to pay the debts is applied on a pro rata basis.

Another important issue is the payment of monetary gifts, these are called pecuniary legacies and are dealt with in section 60 of the Succession Act. Section 60 states that pecuniary legacies shall be paid out of the residue of the estate after payment of the estate’s debts. A deceased person can make a specific gift of money in their will and specifically identify a source from where the monetary gift is to be paid from. The deceased person should make sure that they have sufficient funds in the specifically identified source for the payment of the specific monetary gift or the gift will fail. However, if there is a monetary gift that does not specifically state where it is to be paid from, then section 60 provides that it is to be paid from the residue of the deceased’s estate after payment of the estate’s debts.

This means that executors and administrators will need to make sure any monetary gifts that have not been identified for payment from a specific source are paid from the residue of the deceased’s estate (after payment of the estate’s debts) before they distribute the residue to the beneficiaries of the residue of the estate. If an executor or an administrator fails to do this, then they can be held personally liable for payment of the monetary gifts they did not pay from the residue of the estate.

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This article is for your information and interest only. It is not intended to be comprehensive, and it does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.