There are many necessary steps people have to take during estate administration. The personal representative of an estate must find the decedent’s will and submit it to the probate courts. They have to communicate with beneficiaries and other interested parties, including creditors.
The estate consists of any property owned solely by the decedent, and the estate becomes responsible for any debts owed by the decedent. The personal representative must identify known creditors, communicate with them and publish notice for unknown creditors. They also generally have to focus on repaying creditors before they attempt to distribute assets to beneficiaries.
Certain debts take legal priority over others. What is the order of priority for covering a decedent’s financial obligations during estate administration?
The law establishes a clear order of priority
State statutes clarify what debts are the most important during estate administration. The first debts that the estate must cover are federal taxes. That may include income taxes owed by the decedent or by the estate after the sale of assets. There could also be estate taxes due in cases where the decedent’s property is worth more than $13.61 million.
After that, estate resources should cover funeral expenses and up to $15,000 worth of end-of-life medical expenses. The third priority is any amount due for estate administration and probate proceedings. Next comes secured debts, which may require the sale of certain estate resources.
Child support payments and then state taxes follow. Then, the estate must cover any residual costs from the decedent’s incarceration if they ever served time in state facilities. After that, the estate must repay valid claims related to state medical assistance. All other debts, including credit card balances, are the lowest priority for repayment.
The rights of beneficiaries to inherit from the estate are secondary to the right of creditors and tax authorities to receive payment in full. In some cases, almost all of the assets in an estate end up liquidated to repay creditors. Occasionally, there may not even be enough property to pay all debts in full. Personal representatives often need help identifying creditors and paying them in the right order to protect themselves from liability during estate administration.
Mistakes regarding the repayment of debts during probate proceedings can lead to lawsuits against a personal representative. Understanding the rules that govern probate proceedings can help personal representatives limit their risk of personal financial liability.