The legal entity that owns and controls a person’s property after they die is known as an estate. The person who leaves behind an estate is called the decedent. It is customary for the decedent to appoint someone to administer the estate and act as the executor of the estate in his or her last will and testament.
The executor of the estate fulfills many roles and responsibilities for the estate throughout the probate process. One of the most important duties that an executor performs is to pay off any final expenses that the decedent incurred as well as to pay off any debts and claims against the estate. New York Surrogate’s Court Procedure Act dictates what debts and expenses should be paid out of a decedent’s estate first. However, sometimes it is not possible for an estate to satisfy all of its debts and obligations.
The Insolvent Estate
When there are not enough estate assets to pay for the estate debts, the estate is said to be insolvent. This can be a big problem for everyone involved: creditors, the executor and the beneficiaries.
The beneficiaries are the ones who lose out the most when an estate is insolvent. Instead of receiving their expected inheritance they will most likely end up receiving nothing. Even if the executor transfers assets to the beneficiaries, if the estate is insolvent and the executor chose to ignore the creditors, the creditors may contest the transfer and cause legal issues for the executor and estate. Beneficiaries have no personal responsibility to make sure that the debts of an estate are solved however.
The Executor Handles the Creditors
The executor has a hard decision to make when it comes to handling creditors in an insolvent estate. Not only must the executor consider the merits of each claim of debt against the estate, he or she must also determine in what order those claims get repaid under New York law. If there is not enough money to satisfy all of the debts, the executor may also have to decide how much each creditor should receive, if they should receive anything at all.
Creditors Lose Out the Most
Since who gets repaid first is a matter of New York law as mentioned previously, most creditors lose out completely in an insolvent estate. By law, any expenses the estate incurs during the estate administration process will be paid first. This includes the costs for lawyer fees and the executor’s expenses. The next debts that will need to be paid are those associated with funeral expenses. Depending on the amount of assets in the estate, it is more than likely that most creditors will not have high priority in being repaid, especially if the estate has to pay a large amount of legal fees.
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