Administering a loved one's estate can be overwhelming and confusing. There are so many issues to navigate and legal requirements to sift through. In many cases, the executor feels pressure from the other beneficiaries and is eager to complete each task, such as paying off debts and expenses as quickly as possible. However, this can lead to costly mistakes. Below we'll explore how to locate all creditors and the "pecking order" for paying these debts and expenses.
Do I have to pay the debts of my loved one's estate?
It depends. Generally, debts (and expenses) are only required to be paid through the estate's assets. Estate assets are the assets held in the decedent's individual name at the time of his or her death. Any accounts that were jointly held or listed beneficiaries are excluded. If the total of these estate assets are greater than the total of the debts, the debts will all be paid. If the total is less than the total of the debts, the estate is considered insolvent and we turn to the statute to determine the payment of the debts. Aside from a few exceptions, family members are not personally responsible for the loved one's debts.
How do I know if I've located all of the creditors?
One of the requirements of probate is to advertise the decedent’s death in a newspaper of general circulation and a legal periodical, both in the county where the decedent resided, for three consecutive weeks. Creditors then have one year to make any claims for repayment. This requirement gives creditors an opportunity to present their claims and allows the executor to distribute the estate assets to the beneficiaries without worrying about future claims. What if the estate doesn't have enough funds to pay all of the expenses and debts?
Pennsylvania law provides the "pecking order" in which creditor claims are to be paid when the estate doesn't have enough funds. The order is as follows: (1) The costs of administration (i.e. attorney fees, accountant fees, probate fees, postage); (2) The family exemption of $3,500; (3) The costs of the decedent's funeral and burial, and the costs of medicines/medical care/nursing home within six months of his death,; (4) The cost of a gravemarker; (5) Rents for the occupancy of the decedent's residence for six months immediately prior to his death; (5.1) Claims by the Commonwealth and the political subdivisions of the Commonwealth; (6) All other claims (i.e. credit cards) Once again, these creditors/expenses are paid in the order listed above. For example, if the estate runs out of funds after paying #1-5, then the creditors (i.e. credit cards) in #6 are not paid. This list does not apply to secured debts as those debts are secured against an asset (i.e. mortgage against the house).
If you are administering an estate and aren't sure what bills can be paid, you should consult with an estate attorney before beginning to make payments. We can help you avoid costly mistakes.