What Determines a Legitimate Estate Debt?

by Jennifer Williams Google

Which estate debts are legitimate and must, therefore, be paid out of the assets of the estate is generally determined under state statutes. Some states' statutes will use a form of classification system, while others will list them in the definitions sections. Legitimacy of debt may also be determined by court order or even by the heirs, in certain cases.

Classification of Debt

Some states, such and Florida and Texas, place types of debt into a statutory hierarchy, or classification, of debt. Any debt that fits within these classes is automatically considered legitimate debt of the estate. Probate statutes list these debt classes in a specific order, and all debt within each class must be paid in full before the estate's personal representative can begin paying creditors in the next class of debt. These classes usually include costs of administering the estate; funeral expenses; federal, then state, taxes; certain medical expenses; family living allowance; court ordered child support; debts incurred after death from the decedent's on-going business concerns and amounts of any judgments rendered against the decedent.

Debt by Definition

Not all states provide a classification system for debt. Those that don't, like California for example, instead provide statute that defines legitimate estate debt. These definitions often include some of the same debts listed in other states' classification systems but usually are not as comprehensive and leave more open to the interpretation of the courts. California's definition specifically includes litigation claims; funeral expenses; costs of estate administration; taxes; medical expenses and the family's living allowance, i.e., money to sustain the family while the probate action moves through the courts.

Adjudicated Debt

Any debt adjudicated as legitimate by the courts is legitimate estate debt. Debts disputed by the estate administrator or the decedent's family are litigated in the course of estate administration. In this circumstance the court has the final say as to the legitimacy of a debt.

Accepted Debt

Debt the estate heirs unanimously agree is legitimate is accepted by the courts as legitimate estate debt. Heirs of the estate can decide that a particular debt is legitimate, as long as they so decide together. As long as everyone agrees, the estate representative is obligated to include the debt in the list of claims to be paid from estate proceeds.