What Should I Know About the Debts of a Deceased Spouse or Loved One

November 13, 2020

Losing a spouse or loved one can have devastating effects on your mental and physical health. Once someone dies, the determination of the distribution of property will be made in a process known as probate. The probate process can be complex and confusing and can only intensify the stress felt during this difficult time. Probate of a deceased’s estate can lead to causes of action relating to the administration of the estate. Additionally, where an estate is insolvent, meaning its debts and liabilities exceed the value of its assets, there can be questions as to who is responsible for paying those debts.

The Probate Process and the Personal Representative

Upon the death of someone, there are a few steps that a personal representative should take to help the process run more smoothly. A personal representative should start by identifying the beneficiaries of a will or heirs. He or she should also identify what property of the deceased will be distributed in the probate process. The personal representative should understand what responsibilities and powers are afforded to him by the will, as well as what restrictions are placed on the transfer of property to the beneficiaries. Next, a personal representative should value and manage the assets of the estate and dispose of any that are not likely to be of value. However, the personal representative should not sell assets that have a chance of declining in value when a will specifically states that such assets should not be sold.

Duties of the Personal Representative

A personal representative has duties owed to the deceased and the beneficiaries in his or her capacity as such. Duties include:

  • Providing beneficiaries and heirs with a notice of probate
  • Filing an inventory of assets with the Commissioner of Accounts
  • Filing an accounting report with the Commissioner of Accounts each year
  • Filing federal estate taxes where an estate’s assets are valued at $11.58 million
  • Filing a federal estate income tax return where an estate generates more than $600 in income for a tax year

Order of Priority to Pay

Typically, a creditor must file a claim to collect on a debt owed by the deceased. The creditor can file this claim as long as probate proceedings remain open.

According to the Code of Virginia Section 64.2-528, there is an order in which the debts and liabilities of the estate must be paid. The debts of the highest priority class of creditors must be paid before paying an inferior class. Additionally, claims within classes are prorated where the assets of the estate are not sufficient enough to pay those debts (Section 64.2-549).

1. Administration costs and expenses: These are the costs incurred during the probate process to distribute the deceased’s property.
2. Family and household allowances: This includes a family allowance which is meant to support a surviving spouse and the minor children of the deceased and is capped at $24,000. It also includes an exempt property allowance that can include up to $20,000 of the personal property of the deceased. Lastly, these allowances include a homestead allowance. This is not available where a surviving spouse claims an elective share of an estate.
3. Funeral expenses not to exceed $4,000: When a personal representative uses assets to pay for funeral costs immediately following the death of the estate owner, he or she may be personally liable for those costs when the estate is determined to be insolvent.
4. Federal taxes and debts.
5. Medical expenses of the deceased’s last illness: This includes a payment to each hospital or nursing home not to exceed $2,150 and payment to each doctor or person that provided care not to exceed $425.
6. State debts and taxes.
7. Debts due where the deceased previously acted in a capacity which held a fiduciary duty to another person: This could include situations where the deceased acted as trustee for a disabled person or a personal representative, conservator, or guardian in Virginia.
8. Debts and taxes owed to municipalities in Virginia.
9. All other claims.

When There Are Not Enough Assets to Pay Debts

Section 6.2-611 of the Code of Virginia states that where the assets of the deceased party’s estate are insufficient to pay the debts, taxes, or administration of the estate, account funds are not transferable to survivors to the extent that those funds are needed to pay liabilities. This means that a beneficiary will not receive funds while there are debts or liabilities owed by the estate.

Where an estate is insolvent, generally, the personal representative will not be held personally liable for the debts of the estate. However, the personal representative can be held personally liable where he or she acted in bad faith or did not pay the estate’s debts and taxes in the order of priority as defined by statute. Additionally, if the personal representative pays creditors in the incorrect order according to statutes defining priority of payment, then he or she will be personally liable to those higher priority creditors who were not paid.

Beneficiaries will also not be held personally liable for the payment of the debts owed by the estate. Instead, after prorating payments to creditors, the debts will no longer exist.

Are You Facing Probate Proceedings in Virginia or Washington D.C.?

If you are the beneficiary of a will or an heir to someone who has passed, you may have questions regarding the probate process and what to do when an estate is insolvent. The skilled attorneys at McClanahan Powers, PLLC understand the probate process and can help you to navigate the administration of an estate during a difficult time. Our attorneys will explain the circumstances of the estate and the distribution of assets according to the will and the law. If you are the beneficiary or heir of someone who has recently passed away, contact McClanahan Powers, PLLC. Call us at (703) 520-1326 or visit our website to schedule a consultation today.