Just as no one can predict death, no deceased individual could have anticipated leaving debts that their estate’s assets would not be able to cover. As unfortunate as it is for creditors and heirs, it is only realistic for the law to have the estate pay what it can to whom it can.
No cutting in line: Following the law’s sequence
Virginia’s estate law lists the order of preference for payment in the event that the decedent’s estate funds are insufficient to pay for all debts and obligations. Executors and administrators must make payments in the following sequence:
- Estate administration costs
- Surviving family’s allowance not exceeding a lump sum of $24,000 or installments of $2,000 per month for a year
- Funeral costs of up to $4,000
- Federal law taxes and debts with preference
- Medical, hospital, hospice and nursing care expenses for the decedent’s last illness
- Debts and taxes owed to the Commonwealth of Virginia
- Debts owed as a trustee, receiver, commissioner, personal representative, guardian, conservator, committee or for similar duties
- Child support debts
- Debts and taxes owed to the local and municipal branches of the Commonwealth of Virginia
- All other claims
If there are multiple claims in the same class, there will be no hierarchy of payment among them. Hence, if the administrator is about to exhaust the available funds before paying all debts in the same class, the estate will pay whoever makes the claim first, regardless of whether it is due.
Setting expectations for heirs and beneficiaries
Payment of debts and similar obligations will always be a part of an estate’s administration. Executors or administrators of an estate must pay these obligations first before distributing the remainder of the estate among heirs and beneficiaries.
Of course, with more debts, the fewer the remaining available assets will be for distribution. Understanding the rules of the state’s estate administration process will help set expectations for heirs and beneficiaries.
