Why Creditors Must Be Paid Before You Receive an Inheritance
If you are a beneficiary or heir of an estate, it can be frustrating to learn that distributions may have to wait while creditor issues are resolved. That delay is usually part of the normal probate process.
Creditors Must Be Given Notice
When a probate estate is opened, creditors are generally given notice and an opportunity to submit claims for money they believe the deceased person owed them. Known creditors may receive direct notice, and notice is also typically published so that other creditors have an opportunity to come forward.
Creditors Usually Must File a Formal Claim
A creditor generally cannot simply demand payment and expect the Personal Representative to write a check. The creditor must usually file a formal creditor’s claim within the time allowed by law. That gives the Personal Representative an opportunity to review the debt and determine whether it is valid. The Personal Representative may ask questions such as: Is the debt actually owed? Is the amount correct? Was the claim filed on time? Is there documentation supporting it? Can the amount be negotiated? Does the creditor have priority over other creditors?
Filing a Claim Does Not Mean It Will Automatically Be Paid
A creditor’s claim can be accepted, negotiated, partially accepted, or rejected. For example, a creditor might claim $20,000, but the estate may determine that only $12,000 is adequately supported. The parties may then negotiate a settlement rather than fight over the entire amount. This process can help preserve more money for the estate.
Some Creditors Get Paid Before Others
Probate law establishes an order for paying debts and expenses. Certain expenses—such as costs of administering the estate, some funeral and medical expenses, taxes, and other preferred claims—may have to be paid before ordinary unsecured debts such as credit cards. If the estate does not have enough money to pay everyone, some lower-priority creditors may receive only part of what they are owed, or possibly nothing.
Why Beneficiaries Have to Wait
Beneficiaries and heirs are generally paid only after the estate’s expenses and valid creditor claims have been properly addressed. The Personal Representative therefore has to be careful about making distributions too early. If money is distributed and a valid creditor claim later appears, the estate may have difficulty recovering those funds.
The Bottom Line
The creditor process is designed to make sure legitimate debts are addressed before the remaining estate is distributed. For beneficiaries and heirs, that means patience may be necessary. But careful review of creditor claims can also protect the estate from paying improper or excessive debts and help preserve as much of the inheritance as possible.
Drizin Law is providing this information for educational purposes only. It should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. This information is based on general principles of Nevada law at the time it was created and you should be aware laws frequently change. Moreover, the laws affecting you may differ depending on the circumstances. You should consult with a qualified attorney in your own state or jurisdiction concerning your particular situation. Review of this information does not create an attorney-client relationship.
Lee A. Drizin, Esq. is the founder of Drizin Law and has practiced in Las Vegas for over three decades. His work focuses on probate, estate planning, trusts, and guardianship, with particular experience handling contested probate and administration matters. A UNLV graduate with a Master of Laws in Taxation from Boston University, Lee has built his career helping Nevada families navigate some of the most difficult times in their lives.
