Who Gets Paid First When There is Not Enough Money to Pay All the Creditors in a Probate Estate?
The rules of probate are complex, and the process can be stressful for a personal representative. It becomes even more stressful if there won’t be enough money to pay off all the creditor claims that have been filed. The priority of payment of probate expenses has been set out in Florida Statute § 733.707.
There are eight classes as follows:
Class 1: Costs/expenses of administration, personal representative fees and attorney fees
Class 2: Funeral expenses up to $6,000.00
Class 3: Federal and state debts and taxes
Class 4: Medical expenses for the last 60 days of the last illness
Class 5: Family allowance
Class 6: Child support arrearages
Class 7: Debts incurred to maintain decedent’s business
Class 8: All other debts
If there are enough funds to cover all of the Class 1 debts, but not enough to cover all of the next class down, then the creditors are paid a percent of the funds equal to the percent that debt is to the whole obligation under that class. For example, there is enough money in an estate to pay all of Class 1, with $3,000 left over. The expenses in Class 2 total $6,000 with $2,000 owed to a funeral home and $4,000 owed to a cemetery. The funeral home would receive one third of the remaining funds or $1,000, as their expense constitutes one-third of the entire obligation of that class. And the cemetery would receive the other two-thirds or $2,000.
All of the other claims that have been filed in any other class, in our example above, would remain open in the probate case, even if the judge approves the accounting and releases the personal representative of their obligation, a claim cannot be dismissed or stricken based on insufficient funds to pay the claim. In Chase Manhattan Bank USA NA v. Estate of Silveira, 815 So2d 770 (Fla Dist Ct App 2002), the court ruled that the claims must stay open in case an estate ever comes into more money in the future and the probate must be reopened.
Depending on the nature of the outstanding claims when it comes time to settle the estate, some creditors are willing to negotiate a lower payment in order to resolve their debt, if the creditor understands the estate will not have sufficient funds to pay all claims.
If there is a debt owed to an estate, and that is the only asset of an estate that has debts and expenses, a decedent cannot forgive the debt in their last will and testament. Lauritsen v. Wallace, 67 So.3d 285 (Fla 5th DCA 2011). Florida Statute 731.201(10) states that a devise is subject to charges for debts, expenses and taxes. Forgiveness of a debt owed to an estate is seen as a devise to the person that owes the debt. The legislature and the courts have ensured that as long as there are funds in the estate or to be made to the estate, claims will be paid in the order listed above, to the best of the estate’s ability.
Only an experienced probate attorney will know all the nuances of the rules of probate and be able to guide a personal representative through the process. Reduce the stress and speak with an attorney. Call Bedy Law for a free consultation at (727) 308-0529.
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