Purpose of probate: Probate of the estate serves several purposes. It starts with identifying the heirs of the estate, continues with identifying the assets owned by the decedent, continues with paying the claims of the estate, and is finalized by distributing the remaining assets to the required beneficiaries. Every single step of this process may end up with unexpected complications.
Identifying proper creditors: During the probate, process notice must be given to all creditors of the estate, and those creditors must be allowed an opportunity to file a claim against the estate. The Executor of the estate reviews each claim and either approves or denies it. The approved claims must be paid out of the available estate assets.
No sufficient liquid assets: If there are no liquid assets in the estate (cash, life insurance proceeds or brokerage accounts) then the Executor may have to sell non-liquid assets with great sentimental value (family home, 3 generation closely held business, family heirloom) in order to satisfy these claims. One way of avoiding this situation is either having a life insurance policy which will provide the necessary cash or leaving a letter of instruction / Will which will provide instructions on what to do in the situation of not sufficient liquid assts.
No sufficient assets: Sometimes there are no sufficient assets in the estate to pay the claims altogether. When that happens, the Executor does not have discretion on which claims to pay. Instead, the claims must be paid in order of priority set by law. In New York, 1811 of the Surrogate’s Court Procedure Act governs the priority of payment of debts during probate.
Who is responsible for debts: Unless the Executor or the heirs are listed as guarantors or co-borrowers with the decedent, neither the Executor nor the heirs are personally responsible to pay the unsatisfied claims. Only the assets of the estate should be used to pay the claims. The Executor, however, is responsible to ensure that the law of the claim priority is followed, that the assets of the estate are managed properly. If the Executor makes a mistake and distributes the estate assets to the wrong people or pays the wrong claims, the creditors of the estate may sue the Executor personally for breach of fiduciary duty.
It is very important to administer the Estate properly. Contact Katya Sverdlov at email@example.com or 212-709-8112 if you want to discuss your planning further.