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The Wealth & Wisdom Blog

Information on Estate Planning, Estate and Trust Administration and Unique Asset Planning

My estate planning goal is to bounce my last check.”  Numerous clients, in jest.

Most of the estates we represent hold sufficient assets to pay all the deceased loved one’s debts, including the last check written.  In some cases, however, the remaining debts of a decedent exceed his or her remaining assets.  Just last week, President Biden and Congress agreed to raise the federal debt ceiling, news that brought the federal debt to the nation’s attention once again.1 In this month’s update, I segue from the recent national debt ceiling news to briefly summarize the legal implications of personal debts owed at death.

Legitimacy and Payment of Debt

Following death, the appointed fiduciary must ascertain the legitimacy of debts, which typically include contractual obligations, tax liabilities, funeral expenses, and administrative expenses.2 Remaining assets of the decedent are then used to pay off all legitimate debts.  The payment of these debts effectively reduces the inheritance amount received by the decedent’s named beneficiaries. Along similar lines, future generations of U.S. taxpayers will be required to reduce personal wealth to pay down the accumulated federal debt of the federal government.

Solvency of the Estates

If the federal government is unable to pay its debt, bondholders will effectively pay for the debt through a loss in investment value.  At a personal level, in cases where decedent’s debts exceed her remaining assets, the decedent’s estate is said to be “insolvent.”  With insolvent estates, a decedent’s surviving children or other family members are not legally obligated for those debts. Rather, state law dictates an ordering of how remaining assets must be used to pay off remaining debts, thereby determining which creditors are left unpaid.  If the decedent owned assets subject to a security agreement (e.g., a car loan or home mortgage) those assets must be allocated to satisfy such secured debts.  Once any secured debts are paid, remaining assets are used to pay off creditors in the following order:

  • Administration costs, including the fiduciary’s fees, accountant fees and attorney fees;
  • Funeral expenses;
  • Outstanding federal tax obligations;
  • Last illness expenses, including medical assistance claims;
  • Other medical care costs;
  • Outstanding state tax obligations; and only then
  • All other claims.7

The fiduciary must be careful to pay the right debts, and in the right amounts, or else risk personal liability.  Our law firm advises fiduciaries in these situations to make sure of proper payments consistent with state law.

Exempt Assets

Finally, certain types of assets, called “exempt assets,” pass free of debts if those assts pass to certain family members.  Whether assets are considered “exempt” will depend on the circumstances, but here are a few general principles:

Family Allowance and Personal Property.  If a decedent had a spouse or minor children, the family is entitled to a “family allowance” of monthly support payments.  These family members can also receive one automobile, as well as clothing, furniture, and other household effects not exceeding $15,000 in value.3

Life insurance.  The entire death benefit on life insurance passes free of any debts regardless of who is named as beneficiary.4

Individual Retirement Accounts (“IRAs”).  A certain portion of remaining retirement accounts (currently about $69,000) is exempt from creditor claims, with the balance subject to creditor claims.5

Primary Residence, but only to Spouse and Children.  If a primary residence is allocated to either a spouse or children (minor or adult), the residence passes free of most creditor claims except for secured debts or debts related to state hospital care or medical assistance care.6

Even in cases where a decedent bounced his last check, the family may be legally entitled to receive an inheritance, depending on the type of assets owned at death.  Along a similar theme, if the federal government defaults on its debt, individuals who had received federal benefits will have no obligation for repayment of such benefits.

Our firm is honored to represent fiduciaries to administer the trusts and estates of deceased loved ones.  Regardless of whether a deceased loved one left a significant inheritance, or if she bounced her last check, our firm would be honored to assist surviving families.


1 Our national debt currently stands at approximately $31.5 trillion, or about $93,988 per U.S. resident.

2 Minn. Stat. §524-1-201 (8).

3 Minn. Stat. §524.2-403 & 404.

4 Minn. Stat. §61A.12.

5 Minn. Stat. §550.37, Subd. 24(a); See In Re Estate of Jones, 529 N.W.2nd 335 (Minn. 1995).

6 Minn. Stat. §524.2-402.

7 Minn. Stat. §524.3-805.