When someone passes away, their debts remain until the estate pays them off. Before heirs receive any inheritance, California law requires that the estate settle what the deceased owed in a specific order. Following this order protects both creditors and beneficiaries.
How California law prioritizes debts
California Probate Code Section 11420 lists the exact order for paying estate debts. First, the estate covers administration expenses. These include court filing fees, executor compensation, and professional services such as appraisals or accounting. The estate cannot move forward until it pays these costs.
Next come secured obligations, such as mortgages, deeds of trust, or other liens. Lenders can claim the property if the estate does not pay these debts. When the estate sells secured property, it uses the proceeds to pay the related debt first.
After secured debts, the estate pays funeral and burial expenses, followed by last illness costs. The law allows reasonable spending on these final expenses before addressing other claims. Family allowance payments and unpaid wages come next in line. Any taxes owed to state or federal authorities must also be paid according to government priority rules.
Handling unsecured debts
Once the estate covers higher-priority debts, it turns to unsecured debts such as credit card balances, medical bills, or personal loans. If the estate lacks enough funds to pay all unsecured debts, creditors receive proportional payments based on available assets. The executor must document every payment and ensure the process follows probate rules.
How debts affect heirs
If debts exceed available assets, heirs may receive less or nothing from the estate. The executor must pay or set aside enough money to cover valid claims before distributing any property. Beneficiaries do not become personally responsible for unpaid debts, but their inheritance may shrink when the estate runs short.
Resolving debt disputes in probate
Creditors sometimes file claims that the executor disputes. The executor can challenge any claim by presenting evidence in probate court. This process ensures that only legitimate debts receive payment, keeping the estate fair for all involved.