Probate, the process of determining the assets and debts of your estate after your passing, is supervised by a judge in Texas. This process varies for small and larger estates, with having a will making it simpler. Wisely structuring your will may help you avoid probate, especially if no one challenges its validity after your passing. One question you might ask is, “How long do creditors have to collect a debt from an estate in Texas?” Additionally, questions may arise regarding who assists your estate in fulfilling your wishes after your passing.
That person is known as the executor of your will. You will name an executor and possibly a second executor as a backup, within your will. You should think carefully about who you want to put into this position. He or she will be responsible for following the instructions of your will and/or a probate court judge. The executor should be responsible and intelligent enough to follow instructions. They should not be swayed by other factors or people’s opinions. Talk to a potential executor before naming him or her as such in your will.
Your executor oversees making sure the assets of your estate are maintained throughout the distribution process. If your estate owes debts of any kind, then they must pay the debts out of your estate. After settling debts or taxes, referred to as liabilities, the remaining assets can be distributed in accordance with the terms of your will. In a nutshell, this is what the estate planning process looks like in Texas. Will creation, naming of an executor, liability payment, and distribution of assets.
What happens when the probate process begins?
The executor of your will would file a petition to begin the probate case. They would need to be acknowledged as executor by the probate court judge. At that point, he or she would need to begin to keep track of all the assets of your estate. Potential assets include real estate, vehicles, retirement funds, a business, personal property, cash, and bank accounts. A notice to creditors must also be published stating that you have passed. This would allow a creditor to come forward with a debt amount that needs to be paid out of the body of your estate. You may owe money on a mortgage, on credit cards, or on personal debt. Federal student loans are discharged upon the death of a borrower.
Understanding Notice Requirements for Creditors in Estate Administration
Your executor or personal representative must notify creditors of your death. This notification can include publishing in a local newspaper. They could also mail notices to secured creditors like mortgage companies or vehicle finance companies. Additionally, they may send a notice to the Texas Comptroller of Public Accounts.
The costs and expenses of your probate case and estate administration typically take precedence in your estate’s finances. Your executor will receive a reasonable fee for their work on behalf of your estate. Additionally, your executor may need to engage an attorney to aid in estate administration. Other professionals may also be required to ensure creditors are paid and assets are distributed properly. Examples of these are property appraisers and accountants. Managing your estate can be intricate, especially if it is large or complex.
Paying End-of-Life Expenses: Responsibilities for Executors
If you have any outstanding costs associated with your death- burial, funeral, cremation, etc. then those bills must be paid early in the process. Medical bills associated with end-of-life situations will also need to be paid. Your executor should be familiar with what is happening at the end of your life. This is so they can help pay those who need to be paid once you pass away.
Your executor is also responsible for filing your tax return after your passing. Fortunately, Texas has no state taxes so that will not be an issue in your case. An executor will have to determine where to draw money from to pay taxes. The probate court will oversee this process if a case has been filed. Otherwise, the executor will have the final say in taxes and other creditors after you pass away. Therefore, it is so important to select an executor who is responsible and who possesses good judgment.
What happens if your estate has more debt than assets?
The money your estate owes may end up being more than the money that your estate possesses. This is known as an insolvent estate. Your beneficiaries will only have property distributed to them if all creditors and taxes are paid first.
Executor’s Duties: Three Essential Steps in Estate Administration
Your executor will have to follow three steps to fulfill their obligations as the executor of your estate. First, the executor will need to compile a list of your assets. They will organize everything-however he or she deems fit. Next, your creditors will have to be paid in whatever order is mandated by the court or decided upon based on the amount of debt, whether the debt is collateralized and other factors. Finally, your executor will need to distribute your remaining assets to your beneficiaries.
Debts typically do not die with us unless we are talking about federal student loans. Beginning with providing creditors notice as we discussed at the beginning of today’s blog post, your executor will need to take some steps to ensure that your creditors are satisfied with having their loans paid back in full or as close to in full as the situation allows for. This is true for both unsecured and secured creditors. An unsecured creditor is one where the entity does not have any property that it can take back in the event of a default on the loan. An example of an unsecured creditor is a credit card company. An example of a secured lender is a mortgage company or auto finance company.
Notice to Creditors: Requirements Under Texas Probate Code
The Texas Probate Code requires your executor to provide notice to creditors in a certain way once you pass away. The requirements of giving someone notice in a situation involving creditors include:
- Filing a notice in a newspaper that is widely circulated in the county where the decedent passed away or where the estate is being administered
- Providing notice to the Texas Comptroller of Public Accounts and notice by mail to any secured creditors
Your executor has a specific period to complete all these steps. Failure to do so can open potential liability upon your executor. If your executor provides notice to unsecured creditors that means that these creditors have four months to come forward to collect their money. It will lose its right to collect from your estate if it fails to do so during the prescribed time.
What order are debts paid by an estate, ideally?
It is not required for every creditor to come forward and assert claims against your estate to be entitled to receive money out of your estate. The IRS is one creditor that does not have to come forward or risk losing out to other creditors as far as the pecking order to get paid. Rather, the IRS always has first dibs to be able to collect money out of your estate in a situation like this.
Otherwise, once the IRS has had its debt satisfied, here is a rough outline of the order in which creditors will need to be paid out of your estate. Of course, there are almost always exceptions to the rules that we are covering today. That is why you should reach out to estate planning and probate law attorneys with the Law Office of Bryan Fagan. We can share some perspective with you. We will individually analyze every situation in your case so that you and your executor would know how the money would need to be divided, at least initially.
Prioritizing Funeral and Medical Expenses in Estate Settlement
Funeral and medical expenses related to your final illness must be paid first, up to $15,000. Any amounts exceeding $15,000 are considered unsecured debt and are prioritized after other debts. Paying these expenses in cash eliminates debt issues, but if they were charged to a credit card or financed, your executor must prioritize them after IRS obligations when paying from your estate funds.
Next, administrative expenses, often referred to as “housekeeping” expenses, must be repaid. These include any funds used for administering your estate with the probate court, such as court costs, attorney’s fees, expenses, and the cost of monitoring and maintaining your assets until distribution. These expenses take precedence over other creditors and beneficiaries.
Secured creditors come next on the pecking order. This is going to be where companies like your mortgage company, that finance company that made you a loan for your boat, and any other lender who has some item that they can take back if your estate is unable to come up with the case to pay them back. This hopefully will not happen given that you are likely to pass away when you are in your seventies compared to earlier in life. This way the amount of debt that you own should be limited.
Considering Life Insurance for Child Support Obligations After Death
Your co-parent may be relevant in your situation. If you are responsible for paying child support and pass away, your co-parent can potentially make claims for past due child support and future payments. Instead of proceeding with this process, which can be cumbersome, expensive, and time-consuming, Final Decrees of Divorce may require you to purchase life insurance naming your ex-spouse as the beneficiary. This way, the policy would pay out at your death much simpler than having to go through the probate process and waiting for the money to come that way (if at all).
After this are claims by the State of Texas for repayment of medical assistance payments and things of this nature that frankly do not come up very much in probate matters for most people. The most common claims that come at this stage of the process are unsecured debt like the credit card companies that we mentioned earlier in today’s blog post.
Executor’s Role in Notifying Credit Reporting Bureaus After Death
Your executor may also want to notify the three credit reporting bureaus after you pass away. This can be done to get the word out that you have passed away. Any debt taken out in your name after the date of your passing would be done either erroneously or with the intent of trying to steal your identity. Additionally, your executor can use that opportunity to ask for a copy of your credit reports. They can look through them and see what sort of debts you owe. You may owe people or entities a certain sum of money that you were not even aware of previously.
Another entity that your executor should contact in the event of your death is the Social Security Administration. If anyone would be able to receive benefits in your name at your passing this would trigger the SSA to be able to initiate that process.
Do you have a credit account with another person, such as a business partner or family member? Once you pass away that account should no longer be used. Or your name should be removed from the account and the authorized user should become the named person on the account, if possible. That way your estate is still liable for any purchases made on that account.
Managing Creditors’ Claims in Estate Administration
One issue in cases with creditors after a person’s death is distributing property prematurely. Your executor should notify creditors promptly, giving them time to come forward before distributing property as per your will.
An interesting aspect is your executor negotiating with creditors to reduce debt. For instance, if your spouse is your executor and you both have credit card debt, they may contact the credit card company to explain, including any asset limitations.
Note: In Texas, spouses may be liable for debts they were unaware of due to community property laws.
Final thoughts on paying creditors and beneficiaries after a debt
Without a doubt, this is a situation that can get complicated quickly. Know that you are not going to be around for these proceedings to occur. The only time that these issues can even become relevant is when you must pass away first. With that said, be sure that you have drafted a will as soon as possible. Working with an experienced estate planning attorney can help ensure that your wishes are followed through with after you pass away.
Your executor may still need some help managing the probate process after you pass away. In that case, an experienced probate attorney can help him or her execute the will and limit their liability from a personal point of view. A life insurance policy can be a simple way to pay for any debts that are owed by your estate. You can make the life insurance policy out to your spouse as beneficiary and he or she can then pay your debts so that they do not become his or her debts. This is a manageable situation- especially if you plan. Working with an experienced estate planning attorney and being intentional about goal setting are two great ways to serve your family well and set your family up for success once you have passed away.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in today’s blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed estate planning and probate attorneys offer free of charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of estate planning and how your family may be impacted by a probate case.
Other Related Articles:
- Can Creditors Go After Joint Bank Accounts After Death?
- How To Protect Your Estate from Creditors in Texas
- What if there is not enough money in the estate to pay creditors?
- Unlocking the Mystery: How Long Does an Executor Have to Settle an Estate?
- Do I Need an Estate Planning Attorney, Specifically, or Can I Work with a Generalist, Like a Business Lawyer?
- Estate Planning for Digital Assets: Managing Your Online Presence
- The Role of a Texas Estate Planning Attorney in Probate and Estate Planning
- Ordering Certified Letters of Testamentary as an Estate Executor
- Trusts in Texas Estate Planning: When and How To Use Them
- What Exactly is involved in the estate planning process?
Frequently Asked Questions
How long does a creditor have to claim against an estate?
How long before a debt becomes uncollectible in Texas?
What is the statute of limitations on an estate in Texas?
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Law Office of Bryan Fagan, PLLC | Houston, Texas Divorce Lawyers
The Law Office of Bryan Fagan, PLLC routinely handles matters that affect children and families. If you have questions regarding divorce, it’s important to speak with one of our Houston, TX Divorce Lawyers right away to protect your rights.
A divorce lawyer in Spring TX is skilled at listening to your goals during this trying process and developing a strategy to meet those goals. Contact the Law Office of Bryan Fagan, PLLC by calling (281) 810-9760 or submit your contact information in our online form. The Law Office of Bryan Fagan, PLLC handles Divorce cases in Spring, Texas, Cypress, Spring, Klein, Humble, Kingwood, Tomball, The Woodlands, Houston, the FM 1960 area, or surrounding areas, including Harris County, Montgomery County, Liberty County, Chambers County, Galveston County, Brazoria County, Fort Bend County, and Waller County.
Bryan Fagan, a native of Atascocita, Texas, is a dedicated family law attorney inspired by John Grisham’s “The Pelican Brief.” He is the first lawyer in his family, which includes two adopted brothers. Bryan’s commitment to family is personal and professional; he cared for his grandmother with Alzheimer’s while completing his degree and attended the South Texas College of Law at night.
Married with three children, Bryan’s personal experiences enrich his understanding of family dynamics, which is central to his legal practice. He specializes in family law, offering innovative and efficient legal services. A certified member of the College of the State Bar of Texas, Bryan is part of an elite group of legal professionals committed to ongoing education and high-level expertise.
His legal practice covers divorce, custody disputes, property disputes, adoption, paternity, and mediation. Bryan is also experienced in drafting marital property agreements. He leads a team dedicated to complex family law cases and protecting families from false CPS allegations.
Based in Houston, Bryan is active in the Houston Family Law Sector of the Houston Bar Association and various family law groups in Texas. His deep understanding of family values and his professional dedication make him a compassionate advocate for families navigating Texas family law.
