Sadly, it’s not an unusual situation: a spouse dies, and the widow or widower is faced with a situation where the debts of the deceased are larger than their assets. For one couple, who had separate bank accounts and credit cards and filed joint tax returns, the widow is likely not liable personally for her late husband’s debts. However, as the executor, she needs to know what to do.
nj.com’s recent article, “How to pay off dead spouse's debt” explains that when an estate doesn’t have sufficient assets to pay all debts in full, the debts are prioritized.
First to be paid are reasonable funeral expenses. This is followed by the costs and expenses of administration.
If the widow advanced the funeral expenses, then she should be paid back first. She can also reimburse herself for the costs of probating her husband's will and any costs related to the administration of his estate, like legal fees.
The next items to be paid are debts and taxes entitled to preference under federal or state law.
Reasonable medical and hospital expenses related to the husband's last illness are the next to be paid. Any medical bills would fall in this category, if they’re related to his last illness.
Any medical expenses for treatment and care that’s unrelated to the husband’s last illness wouldn’t be included in this category. Instead, that is grouped with any credit card bills, unsecured loans, and other debts.
The executor of the estate should pay every legitimate claim in each category, before moving to the next category. If there’s not enough money to pay everyone in a specific category, the creditors are paid proportionally. For instance, if there was $50,000 left to pay medical bills from your husband's last illness, but there are $100,000 in bills, each creditor should receive 50% of its overall bill.
As a result, when the money runs out, there will be nothing left to pay the credit card bills which fall into the next category. Creditors must submit their claims within a specified period of time. If the personal representative of the estate disagrees with the amount claimed, she must inform the creditor.
There is then a procedure where the creditor must prove its claim and seek a judgment before you’re required to pay.
Speak with an experienced estate planning attorney who knows about the estate administration process. They will help you to work through this stressful process.
Reference: nj.com (January 24, 2018) “How to pay off dead spouse's debt”