When someone dies owing more than his assets and property are worth, the estate is "insolvent" in legal terms. State laws govern how debts should be paid out of any assets that remain. Nebraska follows a specific procedure to be followed by estate executors in this circumstance.
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Probate and Venue
In Nebraska, a county court handles the probate of an estate. The proper venue is the county where the deceased last had a legal residence. The executor files a notice with the court, which then oversees the work of the executor and the distribution of assets from an estate. If the deceased left behind a will, then the executor named in the will is responsible for inventorying property, notifying creditors, paying debts and transferring property to beneficiaries named in the will.
Notice to Creditors
Nebraska executors are responsible for notifying creditors of the probate case. Creditors have 60 days from publication of the notice to present their claims to the court. State law sets the priority of payments out of the estate. Executors first pay administrative costs and fees, then funeral expenses, then back federal taxes, then the deceased's medical expenses, then back state and local taxes, then all other debts such as mortgages, secured loans and credit card accounts. According to state law, there is no priority of claims among debts belonging to a single class. This means, for example, that all medical bills for the deceased have equal standing.
Homestead and Family Allowances
Nebraska law sets down homestead and family allowances -- an amount of money and property that is exempt from claims in probate court. The homestead allowance as of 2012 was $20,000, while the law only required the family allowance to be "a reasonable amount."
If the value of the estate minus liabilities is less than the total of the homestead and family allowances, administrative costs, funeral expenses and medical expenses, then the estate is deemed insolvent. After paying these priority debts, the executor may distribute the remaining assets to beneficiaries according to the will without further notice to creditors.
To close an insolvent estate, the executor must file a Closing Statement with the probate court. The statement verifies that the estate was insolvent, that the executor has disbursed assets to the beneficiaries and that a copy of the statement has been sent to beneficiaries and creditors. If there is no further litigation in the case for a year after the filing of the closing statement, then the executor's appointment as legal representative of the estate terminates.