Avoiding probate through legal techniques saves taxes. What’s more, it prevents an estate from public proceedings. Also, it eliminates the need for constant court approval. What’s more, it reduces time, frustration, and (in many cases), high attorney and court fees. Your personal representative (AKA an executor) must formally inform creditors that you died. This is one of the first steps in the probate process. Often this means the simple act of placing a notice of death in a local newspaper(s). Creditors then make a claim to the probate court.
Probate & Creditors
Outstanding debts typically include the following:
- Credit card payments
- Mortgages
- Car payments
- Insurance premiums
- Real estate taxes
- Utility bills
- Medical expenses
- Funeral costs
- Other legal debts incurred but not yet paid.
Timeline for Creditors
The deadline for creditors to file a claim against probate varies by state. On average, a creditor’ has three months to submit formal claims to your estate. If no one contests the estate, a personal representative pays the outstanding bill with estate funds. The creditor receives payment in full, which completes the claim.
Estate Expenses
Personal representatives, beware. Do not distribute assets to beneficiaries before paying estate’s taxes and outstanding debts. Doing this may result in dismissal by the probate court. The personal representative must cover all estate expenses. Also, you could be named personally liable for deficiencies in estate debt payments. That is, unless beneficiaries return their portions of inheritance to cover outstanding debts. If you must make a partial distribution to heirs, withhold funds to cover estimated expenses.
Creditors’ Claims
If the decedent’s property fails to go through the probate process, creditors’ claims remain pursuable over a longer time. This is partly because no legal requirement exists to notify creditors of a person’s death. By the time a creditor learns about the death, they may not pursue collection. A creditor sometimes chooses a tax write-off for bad debt preferable to chasing down repayment .
Asset Liquidation
In other cases, an estate’s liquid assets are not valuable enough to cover the outstanding debt claim. People lose valuable inheritable property and must sell it to cover creditor claims in probate court. A creditor forcing this type of sale extends probate proceedings. This leads to additional costs. Secured creditors receive priority over unsecured creditors. The primary secured creditor is often a bank.
Debt & Death
When someone dies with substantial debt and limited assets, the estate may be deemed insolvent. Therefore, debt payment is prioritized by all states. A personal representative always pay debts in the order of the associated state’s recognized priorities. Otherwise, the court pays debts deemed dismissible, pro-rated, or forgiven. Meanwhile, secured debts never disappear. Make sure you understand the priority order for estate debts. Some state laws prioritize categories differently.
- Administrative costs
Court fees, filing fees, notice costs, attorney’s fees, and the administrator’s commission - Family exemptions
Many states provide payments to help family members handle living expenses during probate. This family exemption lessens financial strain as families mourns the loss of their loved one. - Funeral and burial costs
Most courts consider cremation, interment, urns, markers, and associated funerary service costs permissible as part of funeral and burial expenses. - Government debts
Income taxes, property taxes, and estate taxes take priority over other debt obligations. - Final medical bills
The court prioritizes expenses relative to a decedent’s final illness or injury over other unsecured debts. Thus, some hospitals reduce final medical bills with negotiated settlements and quick payment. - All other claims
Usually, states fail to prioritize these other more general unsecured debts. Sometimes, cases permit debt payment based on the filing date of claims. And the court may pro-rate other debts.
Asset Distribution
The court assigns assets, such as retirement accounts and insurance proceeds, to a designated beneficiary. So, in this role, they receive different treatment and more protection from creditors. The same holds true for an irrevocable trust, which also protects estates from creditors. A beneficiary designation and specific trust entity help to shield an estate with a heavy debt burden.
Asset Protection
When someone dies, the court secures their estate assets. They also distribute property and funds according to the existing will or state intestate laws. Another vital function of the estate exists for personal representatives. Thus, it guarantees payment of the decedent’s genuine debt obligations. When an estate owns sufficient assets to pay all outstanding debts, payment occurs in any order. If the estate leans to insolvency, the personal representative withholds asset distribution to heirs. They wait to pay until the probate court approves debt fulfillment priorities.
About Skvarna Law in Glendora & Upland, California
Skvarna Law Firm operates offices in Glendora and Upland, California. Also, we provide legal services. And we cover San Bernardino, Los Angeles, Orange, and Riverside Counties. This includes several cities. Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Pomona, La Verne, Montclair, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma.
