Another Messy estate

[pb4uski]

.... If you become the estate's legal representative, then you do have a fiduciary responsibility to pay the IRS and all other creditors in the proper order. There are state laws that list the order that claimants get paid and you need to research your state's law. I think the IRS is usually first in line, then the mortgage and/or HELOC since they're secured by the house; after that you can pay for a funeral, medical debt, outstanding bills, etc. Since you know there are unpaid taxes, you need to be extremely careful not to spend any of the estate's funds on the funeral, even if you decide not to open probate. The IRS can and will come after you personally if you take money from the estate that they later decide should be theirs. The POD account belongs to your wife now and she can spend that money, anything else has to stay in the estate until the creditors are paid.

Great post and a huge reason to just step aside. But I just wanted to clarify for the OP that where cathy63 says

If you become the estate's legal representative, then you do have a fiduciary responsibility to pay the IRS and all other creditors in the proper order.

that is only to the extent that the decedent's assets are sufficient to pay and you have no obligation to use your own funds. That is important to understand because some of the decedent's unscrupulous creditors will attempt to convince you otherwise and that suggest that you are obligated to pay the decedent's debts legally or morally and they are dead wrong about that... just hang up on them... they can't do anything to you.

So you can see what a hornet's nest that any involvement is likely to become so just stay out of it. You've already begun the funeral so go ahead with that but after the funeral is over drop it like a hot potato.

 

[thatguy]

In the past he cheated us out of an inheritance but that's another story. We let it go because we were in better financial shape. I doubt he knew he did anything wrong. There are things in that house from my wife's parents home, some she bought for her parents, that ought to be hers.

There are no other heirs unless a will turns up which I doubt or the Gf makes a bogus claim.
Spoke to another lawyer. "Carrying Costs". Even though we're supposed to get it back, there are costs during probate, like the mortgage payment, insurance & real estate tax.

it's looking more like walk away.
Walking away We might be out 2k to 8k depending on if and what we get from that POD account.

If there is ever an estate sale or auction I can bid on the things I want.

 

[SecondCor521]

I'd take the POD account as it's clearly not part of the estate (not a lawyer here so could be totally wrong ).

The POD account belongs to your wife now and she can spend that money, anything else has to stay in the estate until the creditors are paid.

My understanding differs from cathy63 and Sunset above. The money in the POD account is part of the estate and should first be used to pay for the debts of the decedent as cathy63 outlined in another part of the above post.

All POD does is enable the beneficiary to transfer the funds out of the estate to themselves without those assets having to go through probate. It does *not*, as far as I know, mean that the POD funds are not part of the estate or can avoid being used for the decedent's debts.

Can a POD transfer the money to themselves, knowingly or unknowingly stiffing whatever creditors should have gotten paid instead? Probably, and it probably happens. Doesn't make it legal or right. The transferee also would technically expose themselves to lawsuits from the stiffed creditors.

This is actually something I'm wondering, if a person has POD for ALL accounts, how does the "estate" pay to bury the person, income taxes, debts etc

See above. The funds in the POD accounts are part of the estate and are supposed to go towards burial costs, income taxes, final medical bills and the like. Only after those sorts of things have been paid for can any leftover funds be disbursed according to the will or POD or beneficiary designation.

Now a person can die with so few assets that there isn't even enough to bury them or pay their final expenses or taxes. My understanding is that the money is paid out in priority order until it runs out, at which point everyone from then down in the priority list just has to accept the fact that they're not getting what is owed to them.

If someone dies with not even enough money to bury themselves, then I think that most states have indigent funds that cover burials.

 

[RunningBum]

Nolo agrees:

https://www.nolo.com/legal-encyclopedia/free-books/avoid-probate-book/chapter1-1.html

You can’t shortchange creditors or your family with a POD account—avoiding probate doesn’t mean avoiding your legal obligations. So if you don't leave enough other assets to pay your debts and taxes or to support your spouse and minor children temporarily, a POD bank account (or any other asset that passes outside probate) may be subject to the claims of creditors or your family.

 

[RunningBum]

If thatguy uses the POD checking account money for the burial, they are off the hook for everything else, right? He said it was going to cost them $2-8K

 

[SecondCor521]

If thatguy uses the POD checking account money for the burial, they are off the hook for everything else, right? He said it was going to cost them $2-8K

I think it would depend on what the applicable state law says about the prioritization of liabilities of the estate. Burial obviously is probably pretty high up on the list, if not first on it.

They could do as you suggest, but if in doing so they stiff someone higher up on the priority list then that creditor could come after them and demand to be paid. Worst case, say there's $5K in the POD account and they pay that $5K towards the funeral, and then the IRS comes and says they're higher priority than burial (probably not true but wouldn't surprise me) and then demands $5K from @thatguy's pockets. If the IRS truly were higher priority, @thatguy would have no choice but to take $5K of his own money and give it to the IRS.

Unscrupulous creditors might try the same general trick. While legally @thatguy might be in the clear, it might be a hassle to deal with them.

A safer approach would be to leave the POD account there, and point any creditors that come knocking to the bank where the POD is, and let the bank sort things out according to proper priority order. @thatguy probably won't end up with any money this way, but they also won't be out their own pocket and they'll probably face less hassle.

 

[Amethyst]

Just checking in on this thread, with nothing useful to add. Um, the poor deceased will have been buried by now, n'est-ce pas?

I think it would depend on what the applicable state law says about the prioritization of liabilities of the estate. Burial obviously is probably pretty high up on the list, if not first on it.

They could do as you suggest, but if in doing so they stiff someone higher up on the priority list then that creditor could come after them and demand to be paid. Worst case, say there's $5K in the POD account and they pay that $5K towards the funeral, and then the IRS comes and says they're higher priority than burial (probably not true but wouldn't surprise me) and then demands $5K from @thatguy's pockets. If the IRS truly were higher priority, @thatguy would have no choice but to take $5K of his own money and give it to the IRS.

Unscrupulous creditors might try the same general trick. While legally @thatguy might be in the clear, it might be a hassle to deal with them.

A safer approach would be to leave the POD account there, and point any creditors that come knocking to the bank where the POD is, and let the bank sort things out according to proper priority order. @thatguy probably won't end up with any money this way, but they also won't be out their own pocket and they'll probably face less hassle.

 

[RunningBum]

OP said they've already arranged burial and are on the hook for that. With or without the POD checking account, it would seem. Might as well take the POD and if they have to pay that to another creditor or the IRS, they give the POD money to them.

 

[pb4uski]

It sounds like the OP is already financially committed for more than the POD account.

I agree that the POD account is part of the estate and would be subject to claims by creditors of the decedent (if the OP's DW was a co-owner of the checking account with the decedent then it would be a different story).

If OP's DW can access the POD account then I would take it as partial reimbursement for funeral expenses... just understanding that if the IRS or another higher priority claimant later comes along and claims that money that you might have to pay it but there is also a chance that they won't bother.

 

[thatguy]

Perhaps we can endorse the POD check directly to the funeral home along with our own check for the balance. Then the POD money is never in our hands.

Let me say this. If the POD account had the funds to pay off all his debts and his funeral we would use it for that purpose.

 

[pb4uski]

I just found something that suggests to me that no creditor, even the IRS would come before funeral expenses. It seems to me that whoever is administering probate might criticize you for using the POD funds before probate was established but at the end of the day funeral costs would come first anyway so it is a bit of a moot point.

In fact, it sounds to me like the funeral costs that you pay over the POD would be first in line for payment from the estate.

After the death of a loved one, family members often have to handle many immediate expenses, specifically the costs associated with a funeral, before the estate is officially opened and the probate court grants access to estate assets. If you’ve paid some of those costs or are planning to, you’re probably wondering whether you can use the estate assets to reimburse yourself for funeral expenses or other out of pocket expenses.


The answer is: absolutely, yes!

In fact, funeral expenses are the #1 priority in any estate and will supersede any other creditor, including taxes due to the government.

https://ez-probate.com/learn/blog/can-i-be-reimbursed-by-the-estate-for-funeral-and-other-expenses/

But after the funeral, step aside and walk away from the can of worms.

 

[Sunset]

.

.... The funds in the POD accounts are part of the estate and are supposed to go towards burial costs, income taxes, final medical bills and the like. Only after those sorts of things have been paid for can any leftover funds be disbursed according to the will or POD or beneficiary designation.

....

Thanks.....
This makes a lot more sense and points me in a direction to look upon.
This issue of everything being POD is something I'll be dealing with in the near future, so need to understand it better.

 

[cathy63]

I just found something that suggests to me that no creditor, even the IRS would come before funeral expenses. It seems to me that whoever is administering probate might criticize you for using the POD funds before probate was established but at the end of the day funeral costs would come first anyway so it is a bit of a moot point.

In fact, it sounds to me like the funeral costs that you pay over the POD would be first in line for payment from the estate.



https://ez-probate.com/learn/blog/can-i-be-reimbursed-by-the-estate-for-funeral-and-other-expenses/

But after the funeral, step aside and walk away from the can of worms.

Sadly, the law does not seem to agree with ez-probate's claim that "In fact, funeral expenses are the #1 priority in any estate and will supersede any other creditor, including taxes due to the government."

In California the priority is debts owed to Fed and State government, admin expenses such as executor fees, secured debt such as mortgages, then funerals. Here's the actual law. https://codes.findlaw.com/ca/probate-code/prob-sect-11420.html

Other states may put funerals higher in their priority list than CA does, but Federal law is pretty clear that the U.S. Government gets paid first: https://www.law.cornell.edu/uscode/text/31/3713

A representative of a person or an estate (except a trustee acting under title 11) paying any part of a debt of the person or estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government.

IRS policy does allow them to waive the "we're first" claim in the case of estate admin expenses, especially if doing so would help to preserve the value of the estate assets that will satisfy their claim, but that seems to be done on a case-by-case basis and probably should not be relied on. https://www.irs.gov/irm/part5/irm_05-005-002

Federal law controls in situations in which a federal tax lien competes with any interest under state law or by contract. However, the Service may in its discretion not assert priority of its federal tax lien over reasonable administrative expenses of the estate, to the extent that such expenses are not covered by an insurance policy, trust or other similar benefit that covers the cost of administrative expenses of the estate. State statutes may limit the amount of reasonable administrative expenses permitted to be paid during probate.

(emphasis theirs)

 

[thatguy]

I looked up this
1st: Costs and expenses of administration
2nd: Reasonable funeral expenses

The IRS bill is not huge.

 

[thatguy]

+1. It sounds like the OP and his DW (the decedent's ex-wife) are getting sucked into the void.

OMG NO, my DW is not the decedents ex.

 

[thatguy]

I think it would depend on what the applicable state law says about the prioritization of liabilities of the estate. Burial obviously is probably pretty high up on the list, if not first on it.

They could do as you suggest, but if in doing so they stiff someone higher up on the priority list then that creditor could come after them and demand to be paid. Worst case, say there's $5K in the POD account and they pay that $5K towards the funeral, and then the IRS comes and says they're higher priority than burial (probably not true but wouldn't surprise me) and then demands $5K from @thatguy's pockets. If the IRS truly were higher priority, @thatguy would have no choice but to take $5K of his own money and give it to the IRS.

Unscrupulous creditors might try the same general trick. While legally @thatguy might be in the clear, it might be a hassle to deal with them.

A safer approach would be to leave the POD account there, and point any creditors that come knocking to the bank where the POD is, and let the bank sort things out according to proper priority order. @thatguy probably won't end up with any money this way, but they also won't be out their own pocket and they'll probably face less hassle.

If the POD and IRS debt are what we think they are, we could pay the funeral with the POD and pay the IRS debt and still be ahead.

 

[Amethyst]

One would think that body disposal, in itself not a small expense, would come before everything, as it is not optional.

Then again, if the deceased's family envisions a huge church filled with socially-distanced mourners, shiny white casket covered with roses, a full choir, two preachers, a live band, a Jumbotron, and a burial plot, all to be paid by the estate, this may give the authorities pause.

Sadly, the law does not seem to agree with ez-probate's claim that "In fact, funeral expenses are the #1 priority in any estate and will supersede any other creditor, including taxes due to the government."

In California the priority is debts owed to Fed and State government, admin expenses such as executor fees, secured debt such as mortgages, then funerals. Here's the actual law. https://codes.findlaw.com/ca/probate-code/prob-sect-11420.html

Other states may put funerals higher in their priority list than CA does, but Federal law is pretty clear that the U.S. Government gets paid first: https://www.law.cornell.edu/uscode/text/31/3713



IRS policy does allow them to waive the "we're first" claim in the case of estate admin expenses, especially if doing so would help to preserve the value of the estate assets that will satisfy their claim, but that seems to be done on a case-by-case basis and probably should not be relied on. https://www.irs.gov/irm/part5/irm_05-005-002

(emphasis theirs)

 

[pb4uski]

Sadly, the law does not seem to agree with ez-probate's claim that "In fact, funeral expenses are the #1 priority in any estate and will supersede any other creditor, including taxes due to the government."

In California the priority is debts owed to Fed and State government, admin expenses such as executor fees, secured debt such as mortgages, then funerals. Here's the actual law. https://codes.findlaw.com/ca/probate-code/prob-sect-11420.html

Other states may put funerals higher in their priority list than CA does, but Federal law is pretty clear that the U.S. Government gets paid first: https://www.law.cornell.edu/uscode/text/31/3713



IRS policy does allow them to waive the "we're first" claim in the case of estate admin expenses, especially if doing so would help to preserve the value of the estate assets that will satisfy their claim, but that seems to be done on a case-by-case basis and probably should not be relied on. https://www.irs.gov/irm/part5/irm_05-005-002

(emphasis theirs)

After further research I agree with you that funeral expenses are not first but I disagree with your assertion that government debts come first. I found numerous sources that all outline the folowing priority in general, recognizing that it may vary by state. In each case government debts come after probate administration expenses, family allowances and support and funeral expenses. Perhaps California is an anomaly (who'd have thunk that? ).

While laws vary slightly, many states use the following order of priority for estate debts.

• Administrative costs. The costs of administering the estate are given first priority. Common costs include court fees, the administrator's commission, filing fees, notice costs, and attorney's fees.
• Family exemptions. Many states provide for payments to help family members pay living expenses while the estate is being probated. The family exemption is typically given a high priority so that families do not experience financial stress on top of mourning the loss of their loved ones.
• Funeral and burial costs. Allowable expenses may be capped for funeral and burial costs by state law. In most cases, you can pay for costs related to cremation, interment, markers, urns, and costs associated with the funeral service.
• Government debts. Debts such as property taxes, income taxes, and estate taxes take priority over other obligations.
• Final medical bills. The medical costs for the deceased's final sickness or injury are given priority over other unsecured debts.
• All other claims. Most states do not prioritize other general unsecured debts. In some cases, debts may be paid based on the filing date of the claim or debts may be prorated.

Some states shift the priority of the family exemptions and funeral costs. Final medical bills and estate taxes may also receive different priority based on state law.

https://info.legalzoom.com/article/who-gets-paid-first-out-deceaseds-estate

Statutes fix the order in which claims against the estate are to be paid. The following payment scheme is representative:

1. Administration expenses;
2. Funeral expenses and expenses of last illness (up to a stated dollar amount);
3. Family allowance;
4. Debts given preference under federal law, such as tax claims;
5. Secured claims (up to the value of the security interest);
6. Judgments entered against the decedent during his lifetime; and
7. All other claims, such as unsecured creditors.

https://lawshelf.com/coursewarecontentview/creditors-claims/

Every state sets the priority according to which claims must be paid. The estate’s beneficiaries only get paid once all the creditor claims have been satisfied. Usually, estate administration fees, funeral expenses, support payments, and taxes have priority over other claims. All creditors in a certain group must be paid before creditors in the next priority group can be paid.

https://www.elderlawanswers.com/how-do-an-estates-debts-get-paid-15191

 

[pb4uski]

OMG NO, my DW is not the decedents ex.

I was confused. Went back and read the OP... sound's like OP's wife is decedent's only remaining living relative.

 

[CRLLS]

Just to add to the pecking order in different states, Illinois law says the IRS comes third. It really does vary widely by state. Sorry for the long attachment.

(755 ILCS 5/18-10) (from Ch. 110 1/2, par. 18-10)
Sec. 18-10. Classification of claims against decedent's estate. All claims against the estate of a decedent are divided into classes in the manner following:
1st: Funeral and burial expenses, expenses of administration, and statutory custodial claims. For the purposes of this paragraph, funeral and burial expenses paid by any person, including a surviving spouse, are funeral and burial expenses; and funeral and burial expenses include reasonable amounts paid for a burial space, crypt or niche, a marker on the burial space, care of the burial space, crypt or niche, and interest on these amounts. Interest on these amounts shall accrue beginning 60 days after issuance of letters of office to the representative of the decedent's estate, or if no such letters of office are issued, then beginning 60 days after those amounts are due, up to the rate of 9% per annum as allowed by contract or law.
2nd: The surviving spouse's or child's award.
3rd: Debts due the United States.
4th: Reasonable and necessary medical, hospital, and nursing home expenses for the care of the decedent during the year immediately preceding death; and money due employees of the decedent of not more than $800 for each claimant for services rendered within 4 months prior to the decedent's death.
5th: Money and property received or held in trust by decedent which cannot be identified or traced.
6th: Debts due this State and any county, township, city, town, village or school district located within this State.
7th: All other claims.
(Source: P.A. 100-1079, eff. 8-24-18.)

 

[SecondCor521]

^ It's this sort of thing that makes me generally use the word "generally" or "in my state" or "probably" or "I don't know". Laws differ from state to state, and there can be unusual or uncommon situations that qualify for exceptions to the general rules. And California is often a special case

I stand by my suggestion that OP not get involved and let the bank deal with the POD account, but it looks like the OP is going to do something different. And that's OK.

 

[ncbill]

Here as part of opening probate for my recently-deceased relative I had to provide a receipt from the funeral home showing all their charges paid in full.

It was not too expensive for cremation (~$2,500) even through a traditional full-service funeral home, paying for their cremains to be interred at the church cemetery, including a graveside service with chairs/tent.

 

[MarieIG]

I would feel perfectly comfortable about using a POD account to pay a funeral bill.

My state too requires a copy of the paid funeral bill along with the Petition for Probate.

 

[thatguy]

I would feel perfectly comfortable about using a POD account to pay a funeral bill.

My state too requires a copy of the paid funeral bill along with the Petition for Probate.

What if the family needs money from the estate to pay the funeral?

 

[MarieIG]

What if the family needs money from the estate to pay the funeral?

Some lay out the money; some take funds, if available. It depends if the funds are accessible. If the amount of the funeral costs were laying around in cash; and that was used directly for the payment of the funeral costs (with proof of payment) it should not be an issue. I did take funds out a a POD account with my Dad to pay funeral costs; but it all me, myself, and I as an only child. IIRC the estate tax returns allowed for funeral costs.