There are several important executor duties that need to be fulfilled when administering an estate. One of those duties includes paying off the claims of creditors who have legitimate legal claims. Those payments must be made before the estate can be closed and final distributions to beneficiaries made. Problems can arise, though, when there is insufficient property left in the estate to pay those claims, as well as make the specific bequests that are required under the estate plan. When that happens, decisions must be made about how to allocate the remaining assets. For that reason, most states have rules regarding the priority of claims against the estate, meaning who should be paid first.
Executor duties in a nutshell
When someone passes away, the property making up their estate will be distributed to their heirs and beneficiaries. Typically, the estate is required to go through probate in order to be distributed. This will involve many steps such as proving a will, if there is one, locating the property and creating an inventory, appraising property as necessary, paying the debts and taxes of the estate, and finally distributing the property that remains. These are primarily the executor duties. Here is what you need to know if you are to serve as an executor of a loved one’s estate.
Legitimate debts must be paid by the executor
Once the executor provides notice of the death to creditors, those with debts owed by the estate must submit a claim. If the debts are determined to be valid, they will be paid from the estate by the executor before any other distributions can be made. This would include bills and funeral expenses. California requires creditors to submit their claims within 4 months of the appointment of the executor.
How the California Probate Code addresses debtor claims
California Probate Code Sections 11420 and 19001 both address the payment of creditor claims. Section 19001(a) states that, “upon the death of a Settlor, the property of the deceased Settlor that was subject to the power of revocation at the time of the Settlor’s death is subject to the claims of creditors” of the Settlor’s estate. That refers to the property owned by the settlor, either in a revocable trust or outright.
Furthermore, the Settlor is allowed to designate in his or her will or trust the assets that are to be used first to pay off the debts of the estate, but under no circumstance can the Settlor, ” …alter the priority of payment… set forth in Section 11420″ under the Code.
What the California Probate Code says about priority of claims
Section 11420 of the California Probate Code states that the liabilities of the estate must be paid in the following specific order:
- Expenses related to estate or trust administration
- Obligations secured by mortgage, deed of trust, or other lien
- Expenses for funeral arraignments
- Medical expenses related to the deceased “last illness”
- Family allowance
- Wage claims
- All other debts not covered by the preceding six categories, including “judgments not secured by a lien
Each category of liability must first be paid in full before any debts in a subsequent category can be paid. If there is insufficient assets in the estate to pay all the debts in a particular class, the remaining assets are used to “pay a proportionate share,” among the rest.
The executor must be sure all estate taxes are paid
The executor is also responsible for ensuring that all estate taxes are paid. In most cases, an executor would not be held personally responsible for estate taxes. However, if the estate has been distributed before the taxes are paid and sufficient property does not remain to pay those taxes, personal liability could be imposed.
Providing the accounting and closing the estate by the court
The final step in the probate process is closing the estate. This step requires providing an accounting of all transactions taken by the executor relating to the estate. A final petition summarizing the estate and reporting all actions taken on behalf of the state will be filed with the court. The petition also includes the fees to be paid to the executor and the estate attorney, if there was one. As long as there are no objections and the court approves the accounting, then an order will be entered closing the estate. At that point, the executor can then distribute the remaining assets to heirs and pay any necessary fees.
Join us for a FREE seminar today! If you have questions regarding executor duties, or any other estate planning needs, please contact the Schomer Law Group for a consultation, either online or by calling us at (310) 337-7696.
Latest posts by Scott Schomer, Estate Planning Attorney (see all)
- Many Reasons to Plan - July 8, 2019
- Use Resources Efficiently With a Special Needs Trust - July 7, 2019
- Business Structures That Provide Asset Protection - July 6, 2019