Standing in Line: Understanding How Creditor Claims against an Estate Are Paid

Posted in Probate Litigation. Tuesday, Sep 15th, 2015

Dividing up the assets of the recently deceased can be a complex process full of people with competing interests. Often, the person who has passed on will have written a will, but that will does not necessarily include everyone who has a claim to the property. For instance, people often leave creditors that they owe money to out of their wills. Yet, these creditors still have a valid claim for compensation, and they can bring that claim against a decedent’s estate.

These claims raise a couple of issues. First, if multiple creditors are bringing claims, it is important to determine the order in which they are paid, especially if there are not enough assets to go around. Second, the payment has to come from somewhere. That means that gifts made in the will may end up going to pay down debts, rather than to the person that the deceased intended. That process, known as abatement, also has a specific order.

The Order Creditors are Paid in

The first order that matters is determining the order in which creditors’ claims are paid. While this does not matter as much in estates where there is enough money to pay every creditor, it can be crucially important if the money falls short. Ohio law has a 10-item list that covers all possible debts, which are to be paid in the order that they appear on the list. It starts with the cost of administering the probate process, and then moves to expenses for the person’s burial. Lower down on the list are medical expenses for the decedent’s final sickness, nursing home costs, certain property taxes, and the list ends with a catch-all provision for other debts at the bottom. It is also important to note that item three on the list is an amount set aside for a surviving spouse or minor children to provide short-term support following a parent or spouse’s death.

The Order of Abatement

As important as figuring out the order in which people are paid is determining what funds will be used to pay them. After all, if the decedent has left a will, then money being paid to creditors is being taken from some other person who would ordinarily get it. Fortunately, the law has an order for this abatement process as well, excluding items in joint ownership. The first thing to abate is any property outside of the will, known as intestate property. After that is gone, the “residuary estate” abates. A residuary estate arises when a will includes a clause giving all property not specifically mentioned in the will to a certain person or set of people. If the intestate property or residuary estate is not enough to pay, then the next thing to abate are general gifts of cash. Finally, if there are still creditors left, then specific gifts of non-cash property would need to be abated to pay down the debt.

Creditor claims can make an orderly probate process more difficult, but the law does have procedures in place to handle them. If you have questions about your probate rights, contact an Ohio probate litigation attorney at the Law Office of Mike Gertner today.