November 22, 2017

Payment of Debts from Your Estate

What Happens if You Don’t Have Enough Assets to Pay All Your Debts?

If you are considering different strategies to ensure the orderly distribution of your estate upon death, but realize that you don’t have enough assets to pay all your debts, you may be concerned about how the probate court will determine which debts get paid. Is there a specific priority established under the law? Can you specify the order in which creditors are paid? Will some of your debt be passed on to your heirs?

Passing On Debt

As a general rule, all unsecured debt is personal. If you have personal loans, medical bills or credit card debt, and it is not covered by the assets in your estate, it is generally discharged by reason of your death. Secured debt is different, though. Any lien secured by collateral remains in effect until paid off or discharged by the lien-holder. Accordingly, if you have a mortgage on your home, or your car loan is secured by a lien on the vehicle, when the property passes, the beneficiary takes the property still subject to the lien.

Priority of Payment from an Estate

In Pennsylvania, if there are insufficient assets to pay all expenses, taxes and debts of the estate, the personal representative must pay obligations in the following order:

  • All unpaid federal taxes, including income taxes
  • The costs of estate administration (filing fees, advertising, property valuations)
  • The statutory family exemption of $3,500
  • Funeral and/or burial expenses and claims by the Department of Public Welfare, or other state medical, nursing or employment services rendered within 6 months of death
  • Expense of a gravestone or marker
  • Rents for the occupancy of the decedent’s residence for six months immediately prior to his death
  • Other claims by the Commonwealth
  • All remaining claims (divided equally among remaining creditors)

Contact Us

At Halligan & Keaton, in Media, Pennsylvania, we have more than 60 years of combined legal experience. We provide a free initial consultation to every client. To discuss your estate planning needs with an experienced lawyer, call our office at 610-566-6030 or contact us online. We will travel to your home, a long-term care facility or the hospital to meet with you.