A spouse recently died, and while the couple had separate bank and credit card accounts, they filed joint tax returns. When the husband passed away, his outstanding bills were more than his assets.
While the widow isn’t personally liable for his debts, as the executor she may need to understand if there's an order as to who gets paid first.
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.
If you are unsure of what to do, speak to an experienced estate planning attorney. He or she will be knowledgeable about estate administration process.
Reference: nj.com (January 24, 2018) “How to pay off dead spouse's debt”