When a family member dies, the probate process, using the court’s supervision, settles any outstanding debts. An estate’s executor is responsible for assembling necessary paperwork, and assessing the decedent’s debts and any outstanding taxes due prior to distributing assets to beneficiaries. This distribution to beneficiaries can only take place once debts are settled and creditors are paid.
Once the probate process begins, the executor gathers and preserves the estate’s asset, and notifies creditors and beneficiaries. Creditors usually include funeral expenses, medical bills, credit card companies, credit accounts, utility bills, and other companies or individuals to whom the decedent owes money. The costs and expenses associated with administering the estate are typically one of the first financial priorities of the estate.
The remaining funds and assets of the estate are dispensed according to a payment hierarchy. The funeral and burial costs of the deceased must be paid by the executor. Medical bills for the decedent’s last illness, hospitalization, or hospice care usually come next, but can be superseded by federal tax laws. However, if a Petition for Year’s Support was filed and granted to provide support to the surviving spouse and minor children, the assets included in the Petition for Year’s Support are separated from the asset pool and not subject to creditor claims.
The estate’s executor must also file the decedent’s last tax return and pay any taxes due and owing. If the estate is large, the executor also files state and federal inheritance and estate taxes and makes any required payments. Probate courts may allow the executor to sell assets of the estate to satisfy these debts.
Finally, if an estate is insolvent – or unable to pay its debts – creditors will be paid first, even if that means beneficiaries receive nothing from the estate. Probate courts supervise the administration of an insolvent estate and direct the executor on the hierarchy of payments to creditors and beneficiaries. The probate process benefits the executor by relieving them of any personal responsibility for failing to pay outstanding creditors. Contact the estate planning attorneys at Grissom Law, LLC today. They have the experience you need to ensure your estate is in order, your final wishes are met, and your family is left with peace of mind.
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