What Is An Insolvent Estate?
The normal process for administering a Florida probate estate involves gathering the assets owned by the deceased, paying any outstanding debts and expenses, and then distributing whatever is leftover to the beneficiaries of the estate. But what happens when the estate’s debts and expenses exceed its assets? In legal terms, this is known as an insolvent estate.
The Law Decides Who Gets Paid First
So what happens, for instance, if an insolvent estate cannot pay off the decedent’s creditors? Do those debts simply disappear? Not exactly. If the debt was secured by some asset, such as a house with a mortgage, the lender can foreclose on that property just as they could had the owner defaulted while they were still alive.
As for unsecured debts and other expenses related to the administration of the estate itself, Florida law specifies the order of priority. That is, if the personal representative of the estate is faced with a situation where they cannot pay everything, the law essentially provides a checklist of who to pay first, second, third, et cetera. This list actually prioritizes paying probate expenses before unsecured creditors. So for example, the personal representative would first pay the costs and expenses of administering the estate before anything else, followed by up to $6,000 in funeral or burial costs.
Unsecured creditors tend to fall to the bottom of the list. This means that if the deceased still owed money on their credit cards, for example, those creditors are among the last people to get paid. If the estate runs out of money beforehand, those creditors will walk away with nothing. There are some unsecured debts that take higher priority, such as back taxes or child support owed, but most will fall within the catch-all category of “all other claims.”
Could My Heirs Be Held Responsible for My Debts?
This is perhaps the most common question we get surrounding potentially insolvent estates. Many people are worried their children will get angry phone calls from creditors demanding they pay a late parent’s bill. In reality, such fears are without merit. Unless you were the co-signer or joint account holder on a particular debt, you cannot be held legally responsible for the debts of the deceased.
That said, family members may find themselves on the hook for the costs of paying for a funeral or other estate administration expenses when the estate lacks sufficient assets to do so.
It is also important to emphasize that expenses and debts must be paid before the beneficiaries receive any distribution from the estate. So a family member expecting an inheritance may find themselves disappointed to learn that an estate is insolvent. Indeed, even if the decedent bequeathed a specific item of property to someone, that asset may need to be sold to satisfy a creditor.
If you have further questions about the probate process or would simply like to speak with a St. Petersburg estate planning attorney about your own situation, contact Legacy Protection Lawyers, LLP, today to schedule a consultation.