Comprehensive Estate Planning And Probate Advocacy

What happens if the estate funds are not enough to pay all debts?

On Behalf of | Sep 4, 2023 | Estate Administration & Probate

In probate, as long as the personal representative correctly identifies all estate assets, notifies creditors, settles all obligations and ensures everything is in order, the estate’s administration can run smoothly. Consequently, heirs and beneficiaries should receive their estate shares without a hitch.

However, if there are more charges and claims against the estate than available assets and funds, involved parties may start to worry. Will they be personally liable for the decedent’s unpaid debts?

Insolvency and hierarchy

The estate becomes insolvent if the decedent’s assets are insufficient to cover all charges and claims. Creditors cannot go after the heirs and beneficiaries for their claims.

Nevertheless, the estate still has to pay whatever obligations it can cover. Accordingly, Pennsylvania provides the order in which the estate pays for the decedent’s debts and responsibilities during the estate’s administration, which is listed as follows:

  1. Estate administration fees and expenses
  2. Family exemption amounting to $3,500 for each family member who lived with the decedent at the time of death
  3. Costs of funeral and burial services, medicine, hospital care, nursing services, medical assistance under a program and employee services within six months prior to death
  4. Grave marker fees
  5. Rents due for the decedent’s residence for six months immediately prior to death
  6. Claims by the Commonwealth of Pennsylvania and subdivisions thereof
  7. All other claims

Suppose the personal representative expects to exhaust all estate funds while paying for claims in the same category. Who should they pay first? According to state law, there is no priority between claims of the same class. Hence, the personal representative would likely pay the claimant who first filed their claim, without other considerations.

Facing the process’s complexity

Probate and estate administration is already a complex process on its own. However, the process becomes trickier when an estate involves multiple debts and insufficient funds. Nonetheless, involved parties can still find clarity with the aid of a knowledgeable legal representative who can guide them through the process.