Insolvent Estate proceeding

Some people’s estates are insolvent when they die.  This means that the estate owes more in bills and debts than there are assets of the estate.  If a person dies with $20,000 in the bank, but owes $50,000 in medical bills, the estate is insolvent.  The frequent question that is asked by the family is, “Do we have to pay those bills?”  The answer is “No”.  The Ohio Probate law has a proceeding called the administration of an insolvent estate.  The assets are liquidated or collected by the executor or administrator of the estate and then distributed in a specified order.  These rules are very similar to a bankruptcy.  The first level creditors get paid in full, then the second level creditors until the estate is out of money.  The creditors who do not get paid are out of luck.  They cannot pursue the heirs, beneficiaries, or the executor/administrator for the money.

The claims of the estate are paid in the following order:

(1) Costs and expenses of administration including the filing fees and attorney’s fees for handling the estate;

(2) An amount, not exceeding four thousand dollars for funeral expenses and three thousand dollars for burial and cemetery expenses.  The Court may also approve additional expenses to be included in this section.

For purposes of this division, burial and cemetery expenses shall be limited to the following:

(a) The purchase of a right of interment;

(b) Monuments or other markers;

(c) The outer burial container;

(d) The cost of opening and closing the place of interment;

(e) The urn.

(3) The allowance for support ($40,000) made to the surviving spouse, minor children, or both;

(4) Debts entitled to a preference under the laws of the United States;

(5) Expenses of the last sickness of the decedent;

(6) If the total bill of a funeral director for funeral expenses exceeds four thousand dollars, then, an additional two thousand dollars can be paid next;

(7) Personal property taxes, claims made under the Medicaid estate recovery program, and obligations for which the decedent was personally liable to the state or any of its subdivisions;

(8) Debts for manual labor performed for the decedent within twelve months preceding the decedent’s death, not exceeding three hundred dollars to any one person;

(9) Other debts for which claims have been presented and finally allowed.

The assets of the estate pay in order.  Thus, all of the bills listed in number one above get paid first and in full before any in number two get paid.  If there is money left over by the time you get to number nine, the money is allocated pro rata.  Thus, these general creditors may receive 90 cents on a dollar, 22 cents on a dollar, or nothing for their claim.  Once paid the balance is discharged.