Handling Debts & Expenses in Probate: A Comprehensive Guide
Introduction
Probate isn’t just about distributing a loved one’s assets; it’s also about paying off their debts and handling estate expenses. Unfortunately, this is where many personal representatives—and families—get tripped up.
Failing to properly manage debts and expenses can delay probate, lead to lawsuits, and even put the executor at risk of personal liability.
As a Certified Probate Real Estate Specialist (CPRES), I’ve guided countless families and fiduciaries through the complex process of handling debts and expenses in probate—especially when real estate is involved. In this guide, we’ll walk through everything you need to know, from identifying debts to paying them properly and protecting yourself from financial pitfalls.
Understanding Debts in Probate
When a person passes away, their estate becomes responsible for paying off their debts. This includes:
✅ Mortgages
✅ Credit card bills
✅ Medical bills
✅ Funeral expenses
✅ Taxes
✅ Personal loans
However, beneficiaries do not inherit the deceased’s debts—the estate does. The executor or personal representative is responsible for gathering these debts and paying them from estate assets.
👉 Important: If estate assets aren’t enough to pay all debts, creditors may get partial payment—but beneficiaries won’t have to cover the difference.
Who Pays the Debts?
The executor (if there’s a will) or the administrator (if there’s no will) is responsible for paying debts from the estate’s assets. This includes managing real estate, bank accounts, and other assets to satisfy creditors before distributing inheritances.
Types of Debts in Probate
Let’s dive into the most common debts an executor will encounter:
1️⃣ Funeral Expenses
Typically, these are paid first, using funds from the estate or a payable-on-death bank account.
2️⃣ Administrative Expenses
Costs related to managing the estate, such as:
✅ Attorney fees
✅ Executor commissions
✅ Court costs
✅ Appraisal and accounting fees
3️⃣ Secured Debts
Debts tied to specific assets, like a mortgage on real estate or a car loan. These must be paid if the estate wants to keep the asset.
👉 Example: The estate must pay the mortgage on the family home if the beneficiaries plan to keep it.
4️⃣ Unsecured Debts
Credit cards, personal loans, and medical bills fall under this category. These are paid from estate assets in order of priority set by state law.
5️⃣ Taxes
Final income taxes, property taxes, and any estate taxes must be paid before distributing assets.
How to Handle Debts in Probate
Managing debts properly is critical to avoiding delays and disputes. Here’s how to do it step by step:
Step 1: Identify and Notify Creditors
Most states require executors to notify known creditors—and sometimes even publish notice in a local newspaper to alert unknown creditors.
✅ Known Creditors: Those the executor already knows about, like mortgage lenders or hospitals.
✅ Unknown Creditors: Those who may come forward after public notice.
👉 Tip: Keep a record of all debts you pay to avoid future disputes.
Step 2: Prioritize Payments
State laws dictate the order in which debts must be paid. Generally, it looks like this:
Funeral expenses
Administrative costs
Secured debts
Taxes
Unsecured debts
👉 Warning: Paying debts out of order can create personal liability for the executor.
Step 3: Determine if the Estate is Solvent
✅ Solvent Estate: Enough assets to pay all debts and still distribute to beneficiaries.
✅ Insolvent Estate: Not enough assets to cover debts. Creditors may get partial payments, but beneficiaries get nothing until debts are settled.
Step 4: Use Estate Assets to Pay Debts
Executors typically pay debts using estate funds from:
✅ Bank accounts
✅ Liquid investments
✅ Sale of personal property
If cash is insufficient, the executor may need to sell estate assets—like real estate—to cover debts.
Selling Real Estate to Pay Debts
Real estate is often the largest asset in an estate—and the one most likely to be sold to pay off debts.
🏠 Example: If the estate has credit card debt but no liquid cash, the executor may sell the family home to satisfy creditors.
As a CPRES, I help families and fiduciaries:
✅ Obtain accurate property valuations to determine fair market value.
✅ Coordinate appraisals and inspections to prepare for sale.
✅ Manage marketing and sales to ensure compliance with probate court requirements.
✅ Document every step to avoid challenges from creditors or beneficiaries.
Avoiding Personal Liability as an Executor
One of the biggest risks for executors is personal liability—being held responsible if debts aren’t handled properly. Here’s how to avoid that:
✅ Follow the Law: Pay debts in the order required by your state.
✅ Keep Detailed Records: Document every payment, including who was paid, how much, and when.
✅ Don’t Distribute Assets Prematurely: Make sure all debts are paid (or provided for) before distributing inheritances.
✅ Get Professional Help: Work with an estate attorney, accountant, and CPRES to ensure compliance and protect yourself.
Common Mistakes Executors Make
Even well-intentioned executors can make costly mistakes. Here’s what to watch out for:
❌ Paying Beneficiaries Before Debts
This can leave creditors unpaid and make the executor personally liable.
❌ Ignoring Creditor Notices
Missing deadlines to notify creditors can lead to legal complications.
❌ Failing to Secure Real Estate
Vacant properties can be vandalized or damaged, reducing their value.
❌ Selling Assets Without Proper Valuation
Selling a property below market value can lead to disputes from beneficiaries and creditors alike.
The Role of a CPRES in Managing Estate Debts
As a Certified Probate Real Estate Specialist, I help executors and families navigate the tricky world of real estate in probate—especially when debts force the sale of property. Here’s how I can assist:
🏠 Accurate Valuations: Ensuring property is sold at fair market value to maximize estate funds.
📊 Market Analysis: Providing insights on timing, pricing, and buyer demand.
💼 Transaction Management: Handling paperwork, disclosures, and court requirements.
🤝 Neutral Third Party: Helping reduce family conflict and disputes with creditors.
Handling Debts in Insolvent Estates
What if the estate doesn’t have enough assets to pay all debts?
Insolvent estates are especially tricky. Here’s how it works:
✅ Creditors are paid in priority order, with lower-priority creditors potentially getting nothing.
✅ Beneficiaries usually receive nothing until all debts are paid.
✅ Executors must be extremely careful to follow the law—mistakes can lead to personal liability.
👉 Tip: If an estate is insolvent, get professional advice immediately.
Final Steps: Closing the Estate
Once all debts and expenses are paid, the executor can:
✅ Prepare a final accounting for the court and beneficiaries.
✅ Obtain court approval to distribute remaining assets (if any).
✅ Close the estate.
Conclusion
Handling debts and expenses in probate is one of the most critical—and challenging—responsibilities of an executor. Paying debts in the correct order, managing real estate, and keeping meticulous records are essential to protecting yourself from liability and ensuring a smooth probate process.
As a Certified Probate Real Estate Specialist, I’m here to help you navigate these complexities—especially when real estate is involved. From valuations to property sales to court compliance, I’m your partner in getting it right.
💬 Questions about handling debts in probate? Watch our Youtube video here, or drop them below—I’m here to help!