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What To Do When An Estate Doesn’t Have Enough Money to Pay its Beneficiaries

You’re already dealing with the loss of a loved one, and now you’ve discovered that they died with more debt than you (or perhaps they) realized. It’s certainly not what you’d hope for, but it also might not be as bad as you fear. 

The good news? You are most likely not responsible for paying the estate’s debts. 

The bad news? Your workload as the executor just increased, and you (and any other heirs) may not receive any of the gifts you anticipated from the estate. 

Understanding the probate process will help you move more easily through the difficult work of determining how to address estate debt. 

 

How Probate Assets and Debts are Handled

In most instances, when a person dies, their estate must go through probate. State law controls the probate process, so rules can differ from state to state. However, most follow the same order of priority for payments made from estate assets. Regardless of any bequests made in a will, the estate must make payments in the following order: 

 

  1. Funeral expenses
  2. Estate expenses, including legal fees, executor fees, and court fees
  3. Taxes
  4. Creditors 
  5. Payments to beneficiaries

 

As you can see, beneficiaries are the last to receive their funds. An estate must first pay  

for the funeral expenses, admin expenses, taxes (including the deceased’s state and federal taxes for the prior year as well as any estate taxes),  and creditors before any heirs/beneficiaries.. 

See: What Assets Go Through Probate?

When An Estate Doesn’t Have Enough to Pay Taxes and Debts

First things first: as a beneficiary or as an executor, you are not personally responsible for paying any of the deceased’s taxes or debts — with two exceptions. First, if you were a co-signer on a loan, you are responsible for repayment of that debt. Second, if you are a surviving spouse in a community property state (Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin), you may be liable for your spouse’s debt. 

Most states provide creditors a set period of time (such as 90 or 120 days) to come forward and make a claim against the estate. To do so, they must follow a specific process with the probate court. Be wary of any creditors that contact you directly to demand payment. 

The probate court determines the validity of any claims that are made in the allotted time and the order of payment. Claims made after the time period will not be repaid. If the estate doesn’t have the money on hand to pay a legitimate creditor, the court will require the executor to determine the value of any other assets, such as real estate or retirement accounts and will order liquidation of assets. 

If the estate runs out of money (or available assets to liquidate) before it pays all of its taxes and debts, then the executor must petition the court to declare the estate insolvent. The estate must pay off as much debt as possible, in the order determined by the court. Beneficiaries receive no assets, and any creditors that didn’t get paid will remain unpaid. 

 

When An Estate Doesn’t Have Enough to Pay Beneficiaries

After handling all the taxes and debts, discovering that the estate will not have enough funds to provide heirs with the assets they’re expecting can be a tricky situation. Some heirs may feel entitled to funds or to a specific piece of property or item that had to be liquidated to pay debts. In some instances, beneficiaries may petition the court if they believe that mismanagement of estate funds has resulted in the loss of their benefits. 

See: How to Deal With Family Members When You are the Executor or Administrator of an Estate 

The probate court will oversee the process if the estate doesn’t have enough money to pay its beneficiaries, deciding which beneficiaries receive what amounts. As with the deceased’s taxes or debts, you are not personally responsible for paying any beneficiaries. A reduction in the intended benefit is called an abatement. If the deceased didn’t leave enough to cover all bequests made in the will after all funeral expenses, taxes, and debts have been paid, then the court will have to order abatements.


Managing an estate with significant debts can be challenging, and adding legal fees can feel like rubbing salt in the wound. Many people complete the probate process without an attorney — even when the estate has unpaid debts. We’re here to provide the appropriate forms and the support you need as you go through the probate process. Contact us for a free consultation.