Probate Involving an Insolvent Estate

As an executor of an estate, nothing is more devastating than expecting assets from the deceased’s estate but instead dealing with massive debt obligations. In some cases, a person may die with more debts than assets.

An insolvent estate exists when the deceased person’s debts and obligations exceed the value of their probate assets. These cases are more complex than standard probate matters because the executor or administrator must carefully follow statutory priority rules to avoid personal liability.

Priority of Debt Payments

Regardless of what the will says, the estate must make payments in the following order:

• Funeral expenses
• Estate expenses, including legal fees, executor fees, and court fees
• Taxes
• Secured debts
• Unsecured debts
• Payments to beneficiaries

Lower-priority creditors may receive only partial payment (or nothing at all) once estate assets are exhausted. This means that beneficiaries may be left with very little or possibly nothing. This can be very disappointing for someone who was expecting an inheritance.

When an Estate Lacks Enough Assets to Pay Taxes and Debts

When an estate does not have sufficient assets to cover the deceased’s taxes and debts, it is important to understand where responsibility begins and ends. As a general rule, beneficiaries and executors are not personally liable for the decedent’s obligations. However, there are two key exceptions.

First, if you co-signed or guaranteed a loan, you remain legally responsible for that debt. Second, if you are a surviving spouse in a community property state, you may be responsible for some or all debts incurred during the marriage. Florida is not a community property state.

Most states require creditors to submit formal claims to the probate court within a limited window, often 90 to 120 days. Creditors must follow strict procedures, and executors should be cautious of creditors who bypass the court and demand direct payment. Claims filed after the deadline are typically barred.

If estate funds or liquidatable assets are exhausted before all valid taxes and debts are paid, the executor may need to ask the court to declare the estate insolvent. At that point, remaining assets are distributed to creditors in the priority order set by state law. Beneficiaries receive nothing, and unpaid creditors have no further recourse against the estate.

When an Estate Cannot Pay Beneficiaries

After taxes and debts are addressed, it may become clear that the estate lacks enough assets to fulfill the bequests outlined in the will. This can be especially difficult when heirs expect specific property or monetary gifts that must instead be sold to satisfy creditors. However, executors are not personally responsible for making beneficiaries whole. When this happens, the probate court supervises the process and determines how remaining assets are allocated.

Seek Legal Help

Dealing with an estate can be frustrating when the debts outnumber the assets. It is important to understand proper procedures so whatever assets are available can be properly distributed according to state and federal laws.

Fort Lauderdale probate litigation lawyer Edward J. Jennings, P.A. can answer your questions about probate. We will help you follow all procedures. To schedule a consultation, call 954-764-4330 or fill out the online form.

Source:

trustandwill.com/learn/estate-insolvent