Occasionally, however, a creditor will make a formal claim during the probate process. You must notify creditors of their right to make claims during this process. Sometimes a creditor also will make a claim against a beneficiary, since estate debts transfer to them in proportion to what they inherited, but this is uncommon.
You may wonder what to do if the estate does not contain enough funds to pay debts. This may require selling assets to generate funds, which is a reason to wait to distribute property until you know that you have enough money to cover debts.
Creditors that have lower priority may not be able to collect. Furthermore, some assets will be exempt from being sold to pay debts, such as property protected by a homestead allowance or a family allowance, or property held in joint tenancy. However, there are a few situations in which this rule does not apply. If you cosigned for a loan or held a credit card jointly with the decedent, you may be personally liable for that debt.
If you are the surviving spouse of the decedent, you will be responsible for any debts that you incurred together with the decedent to the extent that the estate cannot pay them. If your spouse incurred the debt on their own, you may or may not be responsible for the debt. This will depend on how you held the property and the law in your state. Last reviewed October In some cases, the IRS may be willing to settle with the executor, but not in all cases, she adds.
Before paying any creditors, executors should consult with a trust and estate attorney to understand the priority of payments. For example, funeral expenses and federal and state taxes take priority over other debts such as the cable bill, she says. Even after setting aside sufficient estate assets to satisfy the highest priority creditors, executors should consider satisfying all other debts and creditors only after the entire estate administration has been completed and all tax returns filed and taxes paid.
This process may take nine months to two years, depending on the complexities involved, Doyle says. That can be a risky tactic. That specific amount must be distributed to the trust or individual, regardless of fluctuations in the value of the assets before funding. One father named his three adult sons as executors under his estate plan, which included a pecuniary formula for funding the trust for the surviving spouse, with the balance of the estate passing to the sons.
In most states, the executor has an obligation to conserve, but not to increase, the value of the assets during estate settlement. Real estate is often one of the hardest assets to administer, says Doyle. One beneficiary might be living in the house, while another might want it sold quickly. Founded in , Bankrate has a long track record of helping people make smart financial choices. All of our content is authored by highly qualified professionals and edited by subject matter experts , who ensure everything we publish is objective, accurate and trustworthy.
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