Over time I have become accustomed to first actions taken by Executors when a family member dies. Ironically, one of the first is often to pay off credit card debt. Nursing home expenses and even funeral bills might initially be ignored or delayed during a time when survivors are seriously concerned about final VISA or Mastercard bills. I say, ironically, because credit card debt is unsecured debt, on the bottom of the list of priorities indicated by Pennsylvania and most other states’ laws. I do not want to give the impression that, as an Executor you should regard paying bills as unimportant. However, you need to know there is an order of priority and it can be very helpful to know it, especially if there are cash flow issues.
Pay administrative expenses, the funeral home, the nursing home, and unreimbursed medical bills incurred within six months of death as a priority. Administrative expenses include the cost of probate, that is filing the Will and related expenses. Attorney’s fees, Executor’s fees, accountant fees for final tax returns and so on are administrative expenses. The funeral bill is very high on the list for obvious reasons. It is not to be ignored. Nursing home and medical bills incurred within six months of death are also very important. If the medical bill is going to be paid by health insurance or the nursing home bill is covered by Medicare or Medicaid you need to confirm this information. If Medicaid paid, there may be a claim under Estate Recovery. Do not forget this if it is applicable. It means the Pennsylvania Department of Human Services, Third Party Recovery could be a creditor of the estate when a house is sold. Here is one place of many where an attorney experienced in elder law and estates can be helpful in sorting through what needs to be paid, when, and from what source.
Sometimes an Executor pays administrative expenses or other priority expenses or the cost of the funeral from his or her own funds initially. If you do this you should keep a record of this and repay yourself after an estate account is established. The same goes for expenses paid from a joint account with the decedent.
The Executor’s job is to pull together the assets that are going to pass by Will and the bills or debts to be paid, then to pay the debts, including taxes and expenses of probate, and distribute the remaining funds to the beneficiaries as the Will directs.
Some assets, like joint bank accounts, POD (payable on death) and TOD (transfer on death) accounts, and life insurance and retirement funds with beneficiaries pass directly and not through the Will. Except for life insurance, they are are still subject to Pennsylvania inheritance tax.
If there are not enough assets in the probate estate to pay all the bills Pennsylvania and other states by law list an order of distribution in which bills are to be paid. At the top are costs such as the costs of administration of the estate and shortly thereafter, payment of funeral bills. Medical bills, including payments made by Medical Assistance for medical care incurred within six months of the person’s death are given higher priority than older medical bills. Credit card bills are unsecured debt and are on the bottom of the pile.
Secured debt needs to be considered too. A mortgage on the house or loan on the car is often resolved by selling the asset and paying the debt from the proceeds of the sale.
If you are contacted by a creditor following a family member’s death demanding payment you need to know whether you are legally responsible or not and the priority of payments. You might or might not be responsible.
Also you need to know those estate bills that are deductible for inheritance tax purposes and those that are not. Deductions including the final funeral bill and related expenses can substantially reduce the cost of the estate and allow for greater distributions to beneficiaries.
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.