How are debts handled in the probate process?

How are debts handled in the probate process?

On Behalf of | Mar 7, 2022 | Probate Administration |

Losing a close friend or family member is emotional and often overwhelming. While there are many difficult matters to tackle, settling the estate’s finances may be one of the most daunting. Many people believe that once a loved one passes away, any debts they owe disappear. Yet, this is not always the case.

Once a person passes away, their property and assets are combined into the estate’s value. The court may require the estate to pay any unpaid debts or expenses out of this value. What types of debt can creditors claim and how do they do it?

What types of debts are eligible?

Not all assets are lumped into the estate’s value and go toward creditor repayment. For example, if the deceased had a 401k plan or life insurance policy, all of the funds transfer directly to the beneficiary in most cases. This also includes funds and property placed into a trust. These items do not go through the probate process and are therefore not eligible to be claimed by creditors.

According to the Texas Bar, claims against the estate’s value may include the following:

  • State or federal taxes
  • Funeral expenses
  • Administration expenses
  • Inheritance and estate taxes

In some cases, beneficiaries may forgo their inheritance funds to pay for these unpaid expenses.

What happens during probate?

During the probate process, creditors may be paid any outstanding debts from the estate’s total value. The remaining property and assets are then distributed to beneficiaries named in the last will and testament. There is only a specific amount of time, however, in which creditors can make a claim toward the deceased’s estate.

Whether you are an estate administrator or are simply getting your estate organized, it is helpful to understand what happens to the debt during the probate process.