The following is provided for informational purposes only and is not, nor should it be construed as legal advice. This particular article refers to payments by Executors for an estate and should not be deemed to be general advice.
In my practice I am often asked by people who are serving as executor of an estate, ” If there are multiple debts due, and I do not have sufficient funds to pay them all, which debts should I pay first?”
There is great temptation to pay the creditor which makes the most noise, thereby proving the old adage, “the squeaky wheel gets the grease.”
This practice of yielding to the most pressure is not, however, typically in the best interest of the estate or in the best interest of the executor. Based upon my personal experience and the experience relayed by executors with whom I’ve worked, the “squeakiest wheel” is often the one that should receive the lowest priority (i.e., unsecured debts, such as those from credit cards).
First is proper to determine what amount, if any, should be set aside for maintenance of a surviving spouse or decedent’s surviving minor children. Space in this column is not sufficient to explain the family allowance in detail, but it shall suffice to say that surviving spouses and minor children are due allowance, if particular conditions exist. (Estates Code §353.101 et.seq.).
Other claims against the estate of the decedent shall be classified and have priority of payment as follows: (Estates Code §355.102).
Class I – Funeral expenses and expenses of last sickness for a reasonable amount to be approved by the court, not to exceed a total of $15,000, with any excess to be classified and paid as other unsecured claims. It should be noted that $15,000 is not a very large sum to cover expenses of the last illness and funeral expenses. It should also be pointed out that this limit only applies to those estates where there are insufficient funds to pay all debts.
Class II – Expenses of administration and expenses incurred in the preservation, safekeeping and management of the estate, including expenses awarded by the court for defending the Will, and unpaid expenses of administration awarded in a guardianship of the decedent. It should be further noted that even though attorney’s fees may be paid as Class II expenses, they only gain this status of priority if they are incurred to protect the interest of all the beneficiaries. A person who files a contest to the Will in an effort to achieve a favorable outcome for himself is not entitled to Class II treatment of his claim.
Class III – Certain secured claims for money, including tax liens, so far as the same can be paid out of the proceeds of the property subject to the mortgage on the property or other lien, and when more than one mortgage lien or security interest shall exist upon the same property, they should be paid in order of their priority.
Class IV – Claims for the principal amount and accrued interest on delinquent child support and child support arrearages that have been confirmed and reduced to money judgment as determined by applicable sections of the Texas Family Code.
Class V – Claims for taxes, penalties, and interest under other select statutes.
Class VI – Claims for the cost of confinement established by the Texas Department of Criminal Justice under Section 501.017 of the Texas Government Code.
Class VII – Claims for repayment of medical assistance payments made by the State of Texas under applicable sections of the Human Resources Code to or for the benefit of the decedent. If the decedent was the beneficiary of Medicaid, and if such application for benefits was made after March 1, 2005, the state of Texas may file a claim for reimbursement for all Medicaid benefits received by the decedent as a Class VII claim.
Class VIII – All other claims. This is the lowest priority of claims and includes, but is not limited to, all unsecured claims such as credit card debt. Even though credit card companies may be the most aggressive in attempting to collect a debt from the estate of the decedent, they are actually in the lowest position of priority of payment.
If the estate that you are serving as the executor is one of those that is fortunate enough to have a much greater balance of assets than liabilities, then these priorities, while still important, have less of a long-term impact so long as the executor pays or settles all of the debt.
If, on the other hand, the estate that you are serving as the executor does not have sufficient assets to pay all claims against the estate in total, it is extremely important that you make a determination regarding which debts are to be paid and in what order. As always, you are encouraged to seek the services of a qualified attorney of your choice.
James Bright is admitted to practice before the Federal Courts for the Southern District of Texas and Eastern District of Texas as well as all of the Justice Courts, Probate Courts, County Courts at Law, District Courts, Courts of Appeal and Supreme Court for the State of Texas. He maintains an office in Houston and by appointment another at 208 McCown Street in the heart of historic Montgomery. Contact may be made by telephone (936) 449-4455 or (281) 586-8277. For more information about wills or probate in Texas, please see- www.houstontxprobate.com
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JAMES M. BRIGHT
14340 Torrey Chase Blvd., suite 150
Houston, Texas 77014