Providing Peace Of Mind
For You And Your Family

What happens if estate funds are insufficient to pay all debts?

On Behalf of | Mar 26, 2024 | Estate Administration And Probate |

One of the most demanding responsibilities of an estate’s personal representative is to inventory all debts and demands, inform all known creditors of the administration and pay those obligations using the estate’s available assets.

However, the process becomes especially difficult when the estate’s assets are not enough to cover each and every creditor claim. When this happens, what should an estate’s executor or administrator do?

A hierarchy of payments

Each state has its own rules as to the order in which estates with insufficient funds have to pay debts and demands. In Virginia, an estate’s personal representative must make such payments in the following order:

  1. Estate administration costs
  2. Family allowance
  3. Funeral expenses
  4. Debts and taxes with preference under the federal law
  5. Costs for medical, hospital, nursing home services or goods related to the decedent’s last illness
  6. Debts and taxes due to the Virginia state
  7. Debts due where the decedent was acting in a fiduciary capacity
  8. Child support obligations
  9. Debts and taxes due to the state’s local and municipal entities
  10. All other debts and demands

Note that some of the debts and demands may have limits. For instance, the family allowance must be of reasonable amount, while funeral cost payment must not exceed $4,000.

Moreover, there is no preference in payment for claims of the same class should the estate’s assets not be enough to cover all of them.

To ensure compliance with these limits and manage expectations, it is advisable to consult with a legal representative knowledgeable with probate and estate administration to ensure you are making informed decisions and protecting the estate and the rights of its beneficiaries.