When a person passes away and they owe more money than they have, Florida law controls which creditors get paid first. Each creditor is ranked by class, and creditors of the highest class are paid in full before lower subsequent creditor classes. This procedure continues until all estate debts are satisfied. If the estate does not have enough money to satisfy all debts, the creditors of the lowest levels should be paid in proportion to their respective claims.
Misclassifying a creditor can be a fatal estate mistake. If a lower class creditor is paid before a superior one, the personal representative may become personally liable for the claims of the higher class. If you are not sure how to classify a debt an experienced probate attorney at Lavender Greenberg can help.
Here is a summary of creditor classes as defined in section 733.707 of the Florida Statutes.
Class 1: Administrative Costs, Personal Representative fees, Estate Attorney Fees. Creditors of this class get paid FIRST. This includes any fees that are incurred from the administration of the estate. This includes but is not limited to costs for court filing, personal representative fees, and estate attorney fees.
Class 2 : Reasonable funeral, internment, and grave expenses. Next, personal representatives are expected to pay reasonable funeral bills but the statute limits this amount to $6,000. Note: Funeral bills should be paid in full before attempting to probate the estate.
Class 3 : Debts and Taxes with preference under federal law. This includes necessary federal income tax payments, estate taxes, Medicaid Estate Recovery, and public assistance payments.
Class 4: Medical and hospital expenses of the last 60 days of the decedent’s last illness. If your loved one passed away in a hospital, nursing home, or other treatment facility, this class includes any expenses incurred in the last 60 days.
Class 5: Family Allowance. The family is entitled to a maximum of $18,000 for payment of support of surviving spouse and dependents during the estate’s administration.
Class 6: Child Support. This includes any child support payments the decedent previously owed.
Class 7: Debts acquired after death by continuing decedent’s business.
Class 8: All other claims, including any judgments against the decedent and any excess on Class 2 and Class 4 items.
Here is a link to the entire statute on the order of payment of expenses and obligations: https://bit.ly/2kyPC6V