Are Creditors and Other Bills Paid Out of the Proceeds of the Estate, and What If There is Not Enough Money to Pay the Bills?

I spoke to a couple recently from Brentwood after one of our educational events who asked me how will their children pay their final bills and funeral expenses after they die, and what happens if there is not enough money? I began to discuss with this couple the court process known as probate. The probate court system was designed many years ago as an orderly way of distributing assets and paying bills after someone dies. However, probate has now turned into a very complex, costly, and public court proceeding where the assets, debts, and how much each party will be receiving is put on public display.

When someone dies with or without a will and owns assets in their name, a probate case needs to be filed and the will must be admitted to probate. At this point, an executor or administrator is appointed and confirmed, and the executor or administrator must list all of the assets and debts of the decedent (the individual who died). In addition, the executor or administrator must keep track of all expenses paid out of the estate and report those expenses back to the court before the judge will authorize the distribution of any of the remaining estate assets to any of the heirs.

In addition, the court sets a specific time period for creditors to make valid claims against the estate. This would be where creditors such as credit card companies, hospitals, doctor’s offices, and other companies would file claims saying that the decedent died owing them money. Once this occurs, all of those claims must be paid prior to any of the heirs receiving their share of the remaining assets. In addition, any other court costs and attorney’s fees would be paid out of the proceeds before distributing any of those assets. In addition, if there is not enough money to pay all of these claims, then the estate is considered to be insolvent. However, in certain instances where the estate is insolvent, the home can be brought back into the estate to be sold to pay the remaining creditors and distribute the remaining proceeds to the heirs, after a judge authorizes the executor or administrator to do so.

When I explained this to this couple, they became immediately concerned not only about all of their assets being consumed by costs and unnecessary expenses, but by the public court proceeding that their children would have to go through. I recommended that a possible solution to their concern would be a revocable living trust and funding that trust with all of their assets so that the probate process could be completely avoided and their children would receive immediate access to all of the assets after their deaths.

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