It is common for a number of reasons that an estate will be insolvent, meaning that the number of assets that estate contains is less than the amount owed to creditors of that estate. While an executor or administrator may wish to pay the beneficiaries first, they must realize that the most important part of dealing with an estate is to be sure that all the bills of the estate are paid, not to make distributions from the estate. This duty is so important that New York law has set forth an order in which assets must be distributed, in order to make sure some assets are paid with more priority. Even when there is an insolvent estate, making sure that the estate assets are distributed property is something that must be done right in order for an executor or administrator to avoid potential personal liability, meaning that it is important to have a Westchester estate attorney assisting in distributing estate assets.
New York law prioritizes who gets paid out of estate assets in order to make sure that some parties get their money before others based on importance under the law. The order that estate assets are paid out is:
1. Funeral and burial expenses, this can be either paying the funeral expenses directly or paying back someone who paid any reasonable expenses out of pocket,
2. Administration expenses and attorney’s fees, this includes Surrogate’s Court fees for probating the estate,
3. Estate taxes and personal taxes owed by the defendant such as income taxes,
4. Medical bills for both the incident causing the decedent’s death or illness which caused his or her death,
5. Judgments from any lawsuits against the decedent,
6. Secured debts, otherwise known as debts with collateral, such as a mortgage or car loan, and
7. Unsecured debts, such as credit card or similar debts.
If these debts are paid out of order, a priority creditor has the right to demand the executor or administrator get money back that he or she distributed wrongly. If this cannot be done, the executor or administrator may be personally liable as they were not doing his or her duty.
However, it must be noted that if an estate is insolvent and all of the debts were paid in the proper order, no one else would be responsible for paying the estate debts that could not be paid, except in cases where the debts was jointly held, such as a cosigner on a loan or a jointly held credit card. This means that neither the spouse or other heirs of the decedent nor the executor or administrator are required to pay any of the estate’s bills as long as the rest of the debts were paid in the proper order.
Because paying off estate debts when the estate is insolvent is complex, it is best for any executor or administrator to consult with a Westchester estate attorney to best protect themselves and be sure that those entitled are paid in the correct priority. Call the Law Offices of Albert Gurevich at (914) 293-2043.