Financial Counseling Certification Program (FiCEP) Practice Exam

Do estate obligations need to be settled before any inheritance is distributed?

1. Yes

2. No

3. Only if debts exceed the estate value

4. It varies by state law

The correct answer is: Yes

Estate obligations must typically be settled before any inheritance is distributed. This is a fundamental principle of estate administration. When a person passes away, their estate comprises all their assets and liabilities. Before beneficiaries can receive their inheritance, the estate must first address all outstanding debts, taxes, and other obligations. The reason behind this requirement is to ensure that the estate is handled fairly and legally. Not settling these obligations could result in beneficiaries being liable for the estate’s debts or could complicate the distribution process. By addressing debts first, the estate ensures that all legal obligations are met, protecting both the executor of the estate and the beneficiaries. State laws typically provide guidance on the process and timeline for settling an estate, but the priority of paying debts before distributing any inheritance is a widely accepted practice across various jurisdictions. Therefore, the assertion that estate obligations need to be settled first is aligned with legal and ethical standards in estate management.