Bay Area Estate And Tax Planning Law Firm

How is debt handled in the probate process?

On Behalf of | Jun 23, 2020 | Probate And Estate Administration |

What happens in California to a loved one’s debt in the wake of his or her passing?

That is a question often posed to estate planning attorneys, and a query that just as often naturally leads to a spotlighting of the probate process.

Narrowly termed, probate is the legal mechanism by which a state court determines the validity of a will. It is customarily construed in a broader sense, though, often being viewed as the process that governs all key matters relevant to the administration of a decedent’s estate.

Estates differ, of course. Some comprise myriad and complex realty and personal holdings, while others are quite modest.

Whatever the case, a recent article on estate planning duly notes that an estate “is generally what creditors go after to try collecting on debt.”

In fact, no estate is settled through probate without due consideration for creditors that might exist. Such parties are given public notice of an individual’s passing and may thereafter try to collect on what’s owed them.

Success in that endeavor varies.

As noted in the above-cited article, states laws posit a hierarchical ranking of creditors. Tax authorities unsurprisingly command high status. Funeral expenses and estate administration costs must be accounted for. Medical providers are often high on the creditor rung.

It is sometimes the case that a payment claim will not be paid even when a person died with considerable assets. Not every asset is subject to probate (e.g., a trust holding, a qualified retirement account or life insurance policy). Holdings in those vehicles go directly to named beneficiaries outside probate.

Situations also arise where a surviving spouse can be deemed liable for debt held only in a decedent spouse’s name.

A proven estate planning attorney can speak to all those scenarios, as well as help a client craft sound strategies for dealing with debt obligations.