The Order of Debt Payments in Probate

Probate is a legal process required in many states when a man or a woman passes away. Some states require probate only if the decedent owned real estate, while other states require it if the decedent owned assets worth a specific amount of money or more. The probate process verifies a will and ensures that outstanding debts get paid in full. Debts get paid off in a specified order of priority that depends upon state laws and statutes.

Federal Tax Debt
In most cases, unpaid federal tax debts must be paid before any other estate debts. Tax liens and back income taxes must be paid from the estate assets first, and if applicable for the estate in question and the state where probate is happening, the estate may be required to pay current federal income taxes as well.

Probate Administration
If no federal tax debts exist or once they are paid, the first priority debts that get paid for an estate in most states include debts associated with the probate administration. Probate costs include the personal representative fees, court costs, and sometimes funeral expenses as well.

Recent Medical Expenses
Some states require that recent medical bills take second or third tier priority in the debt repayment order. Recent medical bills generally include expenses for services to care for the decedent at the end of his life, and the total amount that can be paid by the estate as part of the higher priority tier may be limited to a specific dollar amount. If additional expenses, remain they are included with lower priority debts in the probate payoff order.

Family Exemption
Some states have a family exemption law that requires the estate to pay the decedent’s immediate family a specific amount of money as a priority debt. In states that have this law, the family exemption payment is generally treated as a third or fourth priority debt so it gets paid before lower priority debts do.

Other Debt Priorities
Depending upon individual state law, other debts are paid from the estate assets last. Other types of debts can include the cost of a grave marker, recent residential rent for the decedent, utility bills and outstanding credit card balances.

References:
* AARP; “Debts After Death Are you responsible for a relative’s unpaid bills?“; Cathie Gandel; Aug 2010
* Evans Legal; Frequently Asked Questions About Pennsylvania Estates and Trusts; Daniel B. Evans; 2006

Note: I am not a lawyer and this should not be considered legal, financial or other professional advice.