Deciding how your assets should be distributed after you pass can help to reduce the risk of unnecessary stress for the loved ones you leave behind. However, as you work to protect the best interests of your heirs, it is important to remember that any debts you have upon your death will need to be settled before the remainder of your estate can go to the beneficiaries of your will. Understanding the rights that creditors will have against your estate can help you know what actions to take in your planning process.
The Probate Process
Probate is a legal process used to identify a decedent’s assets, pay their debts, and distribute any remaining assets to their beneficiaries.
In Texas, this process is necessary any time a person dies with assets solely in their name, whether or not they have left a will. If the estate’s assets are worth more than $75,000, Texas requires a “full probate” process, which will be court-supervised.
In Texas, a personal representative (or executor) of an estate is required to be represented by a licensed lawyer. This is because the executor represents the interests of both the heirs and creditors of the estate.
Rights of Creditors in Probate
If probate procedures are correctly followed, the process is a thorough means of paying the decedent’s debts in a timely and orderly fashion. The first step is notifying the creditors of the decedent’s death. This is required by law, and it allows any creditors an opportunity to file a claim against the estate.
The executor’s or personal representative’s attorney can take care of sending notices to any known or reasonably ascertainable creditors directly. A notice posted in a local newspaper can fulfill the notification obligation for all other creditors.
A creditor then has a time limit within which they may file a claim against the estate. They must do so within the later of:
- Six months from when the probate process officially begins (i.e., the date letters testamentary or of administration are granted), or
- Four months after the date the mandatory notice is received
It is the creditor’s responsibility to file their claim with the court before these deadlines. If they do not do so on time, their claims will be barred forever except in rare circumstances.
Must the Estate Pay Every Claim Presented?
An estate’s personal representative can decide within 30 days whether to allow or reject a creditor’s claim. The claim is deemed rejected if the personal representative does not allow or rejects it within that time. If the claim is rejected in whole or in part, the creditor must file a suit on the claim within 90 days, or the claim will be barred.
Priority of Paying Creditor Claims
According to Texas law, there is no time limit by which a creditor’s valid claim should be paid, but the personal representative should aim to do so as speedily as possible.
However, there is a specified order in which claims are to be paid, particularly when there are debts in excess of the estate assets available to pay the claims:
- Federal tax liabilities
- Funeral and last expenses
- Family allowance
- Administration expenses
- Matured secured claims
- Child support
- State taxes
- Incarceration costs
- Medical assistance payments
- Other claims
If the estate does not have assets that can satisfy certain claims, those claims may ultimately be rejected. The probate process will provide finality for such insolvent estates.
Contact an Austin Wills and Estates Attorney
Contrary to what many people believe, your debt will not die with you. The debt you have at the time of your death will have significant implications for the distribution of your assets to your heirs. This is why understanding what happens to the debt you leave behind is such an important aspect of estate planning.
If you are concerned about how your debts might affect your loved ones after you are gone, contact an experienced Austin wills and estates attorney from The Law Office of William Jang, PLLC today.
We can help you assess and update your current plans so that you are able to ensure that your last wishes can be carried out in the manner you desire.