The Executor (when there is a Will) or Administrator (when there is no Will) of an Estate has several responsibilities. One of them is to pay off the debts and expenses of the Estate.
But what happens in those situations where the estate has very few assets but a whole lot of debt (i.e. potential creditors of the estate who have valid claims against the Estate to get paid back for monies owed by the decedent during the decedent’s lifetime)?
In such situations, it is important to point out that not all creditors stand on equal footing. Some have higher priority than others, which means they should pay paid first. So, the first most important advice we can give you is to consult with an attorney immediately. This means, don’t feel the need to immediately write out checks to different companies or individuals whom you may think needs to get paid just because a bill came your way. All parties know that an Executor/Admin needs time to (1) get appointed; (2) take care of funeral arrangements; (3) marshal up the assets and liabilities in the estate, including tax burden if any; and (4) finally start paying off the liabilities. If you start to pay the bills as you receive them, instead of in order of priority, you run the risk of running out of funds, and then being sued by a higher priority creditor because you mismanaged the Estate.
Each state has its own rules on what priority each creditor has. In New Jersey, our statute NJ Rev Stat § 3B:22-2 (2013) states that the order is as follows:
- Reasonable Funeral Expenses
- Costs of Estate Administration
- Debts for the reasonable value of services rendered to the decedent by the Office of the Public Guardian for Elderly Adults
- Debts and taxes with preference under federal law or the laws of this State. Medicaid liens fall in this category as well
- Reasonable medical and hospital expenses of the last illness of the decedent, including compensation of persons attending him or her
- Judgments entered against the decedent according to the priorities of their entries respectively
- All other claims
Sometimes, it is not obvious which creditor has the superior claim. For example, if the decedent owned a house, and the house had a mortgage, then the mortgage company would have a superior claim to the house than the Office of the Public Guardian, even though mortgages are not on the above list. Similarly see footnote 2.
Finally, not everyone seeking money from the Estate has a valid claim. Just because you are asked to pay does not mean that you should. If you are unsure if a debt is valid, you should request to see supporting documentation.
Conclusion: If you are the Executor/Administrator of an Estate, and you are having trouble determining which creditors have a valid claim or how to prioritize the claims you know to be valid, you should consult an attorney for assistance. Any payments made to the attorney/law firm should be covered under the Estate assets, so you do not have to use any of your personal funds to engage the attorney’s services.
 At this time, our office offers a 30 minute complimentary consultation with our team where you can present your issues, and we can guide you on whether or not you can handle matters on your own or if you need a professional to assist you in moving forward.
 But be very careful here, because certain Medicaid liens trump all others so, please consult with an Elder Law firm before paying debts of someone who was on Medicaid before he or she passed.