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Creditors of a Trust or Estate: Who To Pay

Unfortunately in this time of economic turmoil, the assets of a Trust or an Estate, such as real estate, deeds of trust, stocks and bonds, can significantly decrease in value from the time the Trust was established or the Last Will and Testament was executed and the date of death. Accordingly, an all too often problem in this day and age facing the Successor Trustee or the Personal Representative is which creditors of the Decedent to pay? In the event the Trust or Estate ultimately does not have sufficient assets to pay all of the creditors, a Successor Trustee or a Personal Representative could be held personally liable for failing to pay a creditor and/or improperly paying a creditor.

Under Nevada law, the debts and charges of a Trust or Estate are ranked in order of priority for payment. For example, the highest priority for payment is the trust or estate administrative expenses, followed next by funeral expenses, then followed by last illness expenses and so on. One must be careful to strictly follow this statutory order of priority if there is a chance there will not be sufficient funds to pay all creditors. If a Successor Trustee or a Personal Representative pays a lower priority creditor and then does not have enough funds to pay a higher priority creditor, the Successor Trustee or a Personal Representative will have to personally pay the higher priority creditor and then attempt to seek reimbursement from the lower priority creditor who was paid.

A related problem is what to do if, after proper payment of some creditors, there are not enough funds left to pay all of the members of the next priority class. An example of this would be to pay all administrative expenses and funeral expenses in full, but then not have enough funds to pay all of the expenses related to the decedent’s last illness. In this situation, the last-illness creditors should be paid on a pro-rata basis.

At the Jeffrey Burr law office, our attorneys have many years of experience guiding Trustees and Personal Representatives in properly carrying out their administrative duties, such as dealing with creditor claims and the proper payment of such claims.

- Attorney John Mugan