Estate Debt Priority for Probate Executor in The Woodlands
Even an Estate has to pay its bills. That is one of your key jobs as an Executor. But how do you know which claims against the estate to pay and in which order? The Estates Code tells us these answers. It is the final word on the estate debt priority you have to follow. There are 8 classes of claims. Here is how they break down.
Funeral expenses and bills of the decedent’s last illness are Class 1 claims. You pay these first. However, there is a key limitation. Fifteen thousand dollars is the maximum amount you can treat as Class 1 and it is subject to a reasonableness by the court standard. You treat any amount over $15,000 as an unsecured claim which I cover below.
Once you finish Class 1 claims, then you pay the expenses of Administration as Class 2 claims. These are bills for administration expenses such as legal fees and Executor fees. It also includes expenses for preserving, safekeeping, and managing the estate such as storage costs and other expenses related to the property.
Claims secured against property of the Estate are Class 3 claims. This includes mortgages, liens (including tax liens), or other security interests against property. This category also has a limitation. The claim is only Class 3 to the extent you can pay the claim out of the proceeds of the secured property. If there is more than one secured claim, then you pay the secured claims in the order of their priority.
Child Support Debts
Child support claims are Class 4 claims. This includes two types of child support debts. The first is for delinquent child support and child support arrearages. This includes interest as well as principal. One of the key requirements for Class 4 treatment is that you base the claim on a judgment or other official determination of arrearages. As a result, you cannot pay a child support claim based on an unofficial calculation or estimate. For your own protection you need an official ruling from the government. The second type of child support debt is for payments that are still due after the person’s death.
Taxes, Penalties and Interest
Claims for certain state taxes are Class 5 claims. This includes penalties and interest.
Debts for the cost of confinement from the Department of Criminal Justice are Class 6 claims.
Medicaid Estate Recovery
Reimbursement claims from certain benefit programs are Class 7 claims. This includes the Medicaid Estate Recovery Program.
And last but not least we have everything else. A debt, bill, or claim, for any expense that is not specifically described in the Estate Code is a Class 8 claim. This covers things like unsecured credit card debts. The most important thing to know about Class 8 claims is that you should not pay them until after you pay all the other claims.
The Correct Estate Debt Priority
For some bills you might not be sure which category they belong to. You should discuss these bills, and all bills, with your attorney to make sure you follow the correct estate debt priority. This is a key step in performing your Executor’s responsibilities successfully.