Your loved one has named you as their estate’s personal representative, and you recently received the Letters of Appointment. As part of your tasks, you have a legal obligation to the decedent’s creditors. In Arizona, you need to follow a specific order of payments. Understanding more about it is key to avoiding legal complications.
The legal pecking order
Upon creating an inventory of assets, you find that they have insufficient funds to pay all claims in full. Because of this discrepancy, you must follow this statutory hierarchy:
- Costs and expenses of administration: Includes filing fees and legal fees
- Funeral expenses: Includes costs to prepare the decedent’s funeral
- Debts and taxes under federal law: Includes unpaid federal income taxes
- Medical bills during the last illness: Includes doctor and caregiver fees who attended to your loved one
- Debts and taxes under state law: Includes state income tax, sales tax and liens
- All other claims: Includes credit cards, personal loans and utility bills
You need to be extremely careful when paying off the decedent’s debts. Failing to follow this order could hold you personally liable to the creditors who did not receive their payments.
Other state rules you must remember
When settling debts, you cannot favor one creditor over another in the same class. For example, multiple credit card companies file their claims under the decedent’s estate. These creditors should receive a pro-rata payment, and you must ensure that you will not pay one creditor 100% and another 0%.
Aside from that, be mindful of your allocations to avoid exhausting all the estate’s funds on bills due today if you know there are future ones that require payment.
Protecting yourself from personal liability
Navigating creditor claims is one of the most technical parts of Arizona probate. As the person in charge of your loved one’s estate, the burden of decision-making rests on your shoulders.
If you are unsure which category a bill falls under or if the estate is insolvent, a probate attorney can offer guidance.
