Probate Matters: Paying Debts and Selling Assets
When you’re named the executor (also known as the "personal representative") of an estate, it’s your job to settle the deceased person’s affairs, usually with court supervision. This process is known as probate. Your job is not just to pass on items and assets to the deceased person’s beneficiaries – before that can happen, you’ll need to settle the deceased person’s debts. You may also find that you need to liquidate the deceased person’s assets, either in order to have the cash to settle debts or in order to distribute the proceeds among the beneficiaries. This process can be simple or complicated, depending on your state’s laws and on the complexity of the estate, but even a simple estate can seem complicated if you’ve never been through the probate process before. Take a look at some of the ins and outs of paying debts and selling assets during the probate period.;
Which Debts Come First?
Almost everyone leaves some debt behind. The deceased person may have had a mortgage or credit card bills. Even if they didn’t, it’s very likely that they have medical bills from their last illness. And of course, there are burial or cremation expenses that have to be paid, and these are also usually considered to be the responsibility of the estate. If you’re an estate executor or personal representative, you may be looking at a number of different creditors and wondering who should get paid first.
Typically, the first payments that are made are the expenses of administering the estate. That means that if you have an attorney helping you sort out the estate rules, an accountant helping you reach a valuation of the estate, or an appraiser determining what assets are worth, those fees are to be paid out first in the process. After that, the burial and funeral costs take priority. In some states, a family allowance may also be exempted at this time. This is not necessarily the amount of money that the beneficiaries will eventually receive after debts are settled, but it’s a smaller amount meant to help the family during the probate period. Other states don’t have family allowance exemptions, which means that beneficiaries won’t receive anything until after all the debts are paid.
Following the burial costs and family allowance (if any), the executor is next responsible for making other priority payments including medical bills, hospice or nursing facility expenses, and state, local, and federal taxes. Some medical bills and taxes may even have priority over the family allowance. Part of the job of the estate executor is to file the deceased person’s final tax return and make sure that all federal, state, and local taxes are paid in full.
Once these debts are taken care of, other debts like mortgages, loan repayments, and credit card bills should be taken care of. It can be difficult to know how much debt a person has, even a person you know well, which is part of the reason why probate can take so long. The court has to give creditors a certain amount of time to file a claim with the estate. Once the probate creditor period is over and all debts have been paid, beneficiaries or the next of kin can receive their inheritance.
How to Sell Assets in Probate
Only the executor, personal representative, or administrator of an estate can sell assets during the probate period. Other parties risk legal problems if they try to sell a deceased person’s assets, even if they believe they have a claim to that property.
Selling property during probate can be somewhat tricky, but it’s sometimes necessary in order to settle debts. The easiest route is if the deceased person left a will that authorizes the executor or representative to sell the property at their discretion. But whether or not a person includes that authorization in their will depends largely on the details of the estate. If there’s a reason to believe that selling the property might not be in the best interest of the estate, an attorney might have advised the person making the will not to include such an authorization.
In the absence of an authorization to sell property, the representative will often need to ask the court for permission to sell the property. Generally, in order to get the permission, any surviving spouse or legal heirs must consent to the sale in writing, and that consent must be filed with the probate court. If consent is not obtained, there will typically be a court hearing to determine whether or not the proposed sale will be approved.
What If There Are More Debts than Assets?
The good news is that if you’re a beneficiary of an estate, you do not inherit that estate’s debts. Beneficiaries are typically not responsible for any outstanding debts that may be discovered after the probate period has passed or that can’t be paid during the probate period.
The bad news is that if the estate doesn’t have enough assets to pay all of the debts discovered during probate, you may not inherit anything at all. The probate court is allowed to reduce gifts named in the will in order to pay off debts. If the estate has more debts than assets, it’s called an insolvent estate. When an estate is insolvent, the assets are used to pay off as much of the debt as possible. The court will decide which debts are the highest priority and who gets what, but when the assets are gone, any remaining debts go unpaid. The beneficiary doesn’t inherit the debt, but they may not inherit any assets either.
If you’re a named executor or personal representative, a probate estate attorney is the best person to help you understand the probate process and correctly pay off debts and dispose of assets. If you’re interested in planning your own estate, an estate planning attorney can help you ensure that your estate is set up in a way that allows your beneficiaries to pay off your debts and still receive their inheritance. If you are in the St. Petersburg area, talk to Attorney David P. Folkenflik to find out more about how the probate laws work and how the practice can help you.