What happens with a probate estate when the debts exceed the assets?

Mark TiptonUncategorized

probate estate debt

If someone has died, and an estate is to be administered, the executor or executrix, also known as the fiduciary, is responsible for gathering the property or assets of the estate. This task requires the fiduciary to track down and list whatever property the departed owned at the time of death. These assets may include cash, bank accounts, investments, real estate, vehicles, and other types of property.

The executor or executrix will also gather or be provided with claims of creditors, who are people or entities to whom the deceased person owed money. Creditor claims may include the funeral bill, taxes, medical bills, credit card statements, utility bills, and any other claim for payment. Creditors have six months, by law, from the date of death to inform the fiduciary that they are owed money by the estate.

Once the fiduciary determines the estate’s assets or property and the estate’s legitimate creditor claims, some ordinary calculations should determine if there are enough assets to pay all the claims. If there are not, then the estate is insolvent and needs to go through an insolvency proceeding, which is similar to a bankruptcy.

Ohio statute provides an order in which an estate’s debts are to be paid. The debts are to be satisfied for each class or type of debt before any amounts are to be paid in a lower-priority class. Top priority is given to the costs and expenses of estate administration. Probate court costs, attorney fees, and fiduciary fees are included in this first class. In this way, the people working to administer the estate are incentivized to fulfill their responsibilities because they will be paid first.

Next in line are up to $4,000 for funeral expenses and up to $3,000 for burial and cemetery expenses. Again, the law prioritizes paying those who are handling the deceased person’s remains and final affairs.

After those expenses are paid, the law provides up to $40,000 for the surviving family’s needs. This provision is called the family allowance and is designed to keep a recently bereaved family from becoming impoverished. The $40,000 family allowance is specifically intended to provide for surviving spouses and minor children.

Next are debts given preference under federal law, such as federal income taxes. Then, the expenses of the last sickness are to be paid. After that, an additional $2,000 in funeral expenses, if billed, are to be paid. Priority is then given to costs arising from the deceased person’s care in a nursing home, residential facility, or long-term care unit.

Then, any personal property taxes that may be owing and other obligations of the deceased to the state or to government subdivisions are to be paid. In this class, Medicaid Estate Recovery claims are also to be paid. For example, if a decedent was supported by nursing home Medicaid, the State of Ohio may be entitled to recover the cost of Medicaid benefits paid on behalf of the deceased patient. This provision is designed to help the State of Ohio offset some of the costs of expensive nursing home care it has paid on behalf of Ohioans.

Then, money owed, up to $300, for manual labor services provided during the year before death are to be paid.

Finally, any other legitimate claims and debts are to be satisfied.

Also, if someone has paid the funeral, burial, and cemetery expenses, for example, that person is entitled to be reimbursed in the order of priority outlined above here.
Note that, as a general rule, the fiduciary and beneficiaries of an estate do not inherit debt! If there are not enough assets to pay all the creditor claims, then those claims can be extinguished via an insolvent estate proceeding.

If you have an estate to administer, and the decedent’s debts may exceed the assets, do not worry. Call attorney Mark Tipton of Tipton Law Firm, LLC to discuss the situation. There is no fee to speak directly to the attorney, and the telephone number to call is 419-636-0010.

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