What Happens If There Isn't Enough Money to Pay All Claims Against an Estate?
Sometimes our clients who are in charge of administering estates ask us what to do when claims against an estate are greater than the funds available to pay them. This is not uncommon in large estates where the decedent owned several pieces of real estate or had multiple business interests. Estates of any size can have a similar problem.
Texas law dictates which claims must be paid in order of priority until the money runs out. The purpose is to put final expenses, family and administration costs first. This way, the family doesn't get left out in the cold while common creditors get paid.
The order in which claims against an estate get paid are:
(1) Funeral expenses and expense of last illness up to $15,000
(2) Family allowance, if any
(3) Costs of administering the estate
(4) Claims secured by a mortgage or lien (including tax liens)
(5) Claims for certain taxes owed to the State of Texas
(6) All other claims filed within six months after Letters Testamentary are issued
(7) All claimed filed more than six months after Letters Testamentary are issued
At each level, if the remaining assets are insufficient to pay each creditor in full, the money must be divided pro rata among the creditors in that level, so that each gets the same percentage of his or her claim.
And don't forget Uncle Sam — Federal law sets out certain rules for paying debts, including taxes, owed to the federal government. If any executor knows or should know money is owed to the IRS or other agency of the federal government, and pays or distributes assets to anyone else instead, the executor may be held personally liable for the deficiency owed to the federal government.
If you need help administering an estate, or need someone on call to answer questions during the process, call an experienced probate administration and litigation lawyer at the Peterson Law Group. Our experienced Conroe, Texas attorneys guide clients through the probate process step by step. Call us at 936-337-4681 or 979-703-7014 or contact us online to make an appointment today.