Your estate is responsible for resolving any debts that remain after your death before assets can be distributed. Creditors in Michigan have a period of several months after a probate notice is published to make claims against your estate. If claims aren’t made in a timely manner, the executor may have no obligation to process them.
Pay off the debts
The easiest way to resolve a debt is to pay the balance owed during the probate process. Debts should be paid with estate assets as opposed to personal funds provided by the executor, family members or others. Protocols for paying debts may be included in a will or other estate planning documents. In the event that your estate lacks the funds to pay a debt, a creditor will be forced to accept that the balance will not be paid back.
How debts are prioritized
Funeral expenses are typically given top priority over even tax or other debt obligations. Estate administration costs are also typically given a higher priority than credit card, medical or other types of outstanding debt balances. It’s also important to ensure that a debt is valid before attempting to pay it. Creditors can submit debt notices listing the balance owed, when the balance was accrued or assessed and the name of the person who is responsible for paying it. If this information cannot be furnished, an executor may be within their rights to deny a claim.
Accounting for debts while creating an estate plan may help to ensure that your affairs are settled in a satisfactory and timely manner. For instance, if you think that assets may be liquidated to pay creditors after your death, you may want to transfer them to an irrevocable trust or gift them.