Probate law demands that an executor must pay the debts and other financial obligations of an estate prior to distribution of assets to a Decedent’s beneficiaries. Although heirs and beneficiaries are not legally responsible for paying off estate debt, the total value of the estate can be greatly reduced as result of debt obligations.
Priority debt obligations.
Living trusts have little protection from creditors while a Decedent is alive. Revocable trusts enable an executor to coordinate debt payments in advance. Claims made against irrevocable trusts can also provide a creditor access to additional funds during the probate process after a Decedent has died. Insolvent estates without adequate liquidity to pay debts and obligations may still be subject to debt obligations after court filing fees, attorney’s fees, and executor costs to administer the estate have been paid. Other priority debt obligations include funeral and burial costs; federal and state taxes; medical bills; child support claims; dependent family support claims; judgments; followed by all other debt.
Types of debt an estate must pay.
If some things are certain such as death and taxes, the latter continues as an ongoing obligation after a decedent has passed. Financial obligations that must be paid by a deceased’s estate:
- · Child support
- · Mortgage loans
- · Car, boat, and recreational vehicle loans
- · Credit cards
- · Promissory notes
- · Leases
- · Business debt
- · Federal student loans
- · Private student loans
- · Medical expenses
- · Income taxes
- · Other taxes
Consequences of Claims and Liens.
The consequences of claims against probate property and existing liens against property can lengthen and complicate a probate proceeding. A decedent’s estate containing property subject to lien by creditors may subsequently be claimed against for recuperation of the same debt. Claims and liens against estate property can reduce the value of the estate and inhibit transfer of assets to beneficiaries. A licensed attorney at law specializing in probate matters can assist an executor in paying off estate debt.
Decedent Debt, Beneficiary Obligations.
Consistent with probate rules, beneficiaries and estate heirs are not personally obligated by to pay off debt after insurance proceeds have been distributed. An estate is responsible to creditors filing claims, yet insurance proceeds distributed to beneficiaries of an estate by an insurer, are protected from those claims.
There are, however, a few circumstances where family members may find themselves obligated to pay off a Decedent’s debts. Existing loans co-signed with the decedent continue as a responsibility of the co-signer. Family members living in “community property states” should check the details for tax responsibilities on transfer of assets, and obligations to debt collection in probation matters.
Public notice of an estate is a common pro-active step in the probate process for many estate executors. If no creditors file claims against the estate at the outset, a case can be made against any collection claims in the future. New York probate rules recognize the rights of beneficiaries and heirs to ignore creditor contact. Debt collector harassment is a common consequence of claims of unpaid debt on an estate.
For more information about New York probate rules, contact a licensed attorney at law specializing in estate law. Ettinger Law Firm licensed attorneys at law are specialists in estate matters and can represent you in a probate case. Contact Ettinger Law Firm for consultation in an estate planning or litigation matter.