The probate process settles the decedent’s affairs. For families and beneficiaries, this means dividing up assets like money, belongings, investments, and other things of value. Some are surprised that it also involves paying off any outstanding bills owed to creditors. While up to $30,000 will be exempt from creditor claims and pass to spouses or children, creditors can open the estate to collect money owed. It can happen even if no one is handling the administration.
The priority goes toward paying creditors
The estate must pay all outstanding bills. While the personal representative should not pay money the estate does not owe, failure to pay valid debts can tie up the probate process. The general approach to avoiding these disputes is to publish an announcement in the county newspaper where the probate occurs. Personal representatives must also notify all known creditors.
The creditor then sends a written claim to the personal representative or the court handling the probate. The estate’s representatives have the chance to pay or refute the claim. Either way, they must notify the creditor. If the estate rejects the claim, the creditor can file a petition requesting the court to allow the dismissed claim. Failure of the personal representative to respond automatically allows the claim.
Common debts to pay
Creditors’ claims are paid in the following order:
- Cost of administering the estate
- Funeral costs
- Taxes and other debts given preference under federal law
- Reasonable or necessary expenses involving health care during the final days
- State taxes and debts
- Other creditor claims
Estates also collect debts
While some money will go out during probate, money may also come in. These can be payment of an outstanding debt, passive income, insurance or other arrangements. Considering the accounting and administration involved, it is often helpful for families or personal administrators to get help from professionals with experience in these matters.
