Estate administration has two main goals. One goal is to distribute the assets of a decedent according to the terms of their will. If there is no will, assets are distributed according to the law of intestate succession. The other goal is to pay the decedent’s debts as well as expenses related to estate administration. These two goals can be at odds with each other, particularly if there are not enough assets in the estate to pay all of the debts and also leave the beneficiaries and heirs with much or anything at all.
While the testator’s goal may have been to provide for their family or other beneficiaries, the law generally puts the interests of creditors ahead of the interests of beneficiaries and heirs. Creditors are paid first according to a statutory order of priority. Beneficiaries and heirs receive distributions only if there are assets left over in the estate after creditors are paid and after expenses of administrations are paid.
There are potentially several different types of debts owed by a decedent at the time of their death or expenses incurred during administration. Under SCPA § 1811(1), debt must be paid according to the following order of priority.
- Funeral expenses and administration expenses of the estate
- Debts owed to the federal or state government such as taxes
- Property taxes
- Judgments against the decedent
- Any other debts that may be owed by the decedent at the time of their death
However, the rule is a little different for estate assets that are from an award from a wrongful death claim.
In In re Mcmillan-Hoyte, the decedent died intestate in 2013, leaving a surviving spouse and six children. The decedent experienced a fatal pulmonary embolism during surgery. A lawsuit was filed by the decedent’s personal representative and a settlement awarded. The Supreme Court determined that 100% of the settlement was for wrong death.
The determination by the Supreme Court that the money awarded to the estate related to the death of the decedent was for wrongful death and not personal injury is critical to this case. Because the sums were for wrongful case, the provision in the statute related to the Rights of Members of Family Resulting from Wrongful Act, Neglect, or Default Causing Death of Decedent apply. EPTL § 5-4.1. Under these provisions, wrongful death settlement amounts are to be distributed to the decedent’s distributees. If, on the other hand, some or a portion of the money was deemed a personal injury award, the statute would not apply to those amounts and creditors would have a right to have their claims satisfied from it before distribution to distributees.
The petitioner, the decedent’s surviving spouse, requested that court order the settlement proceeds to be distributed. However, the Albany County Department of Social Services (DSS), the respondent, objected. DSS argued that the decedent owed it $72,129.60 for Medicaid. The basis of DSS’s objection was that the Supreme Court did not have the authority to decide how the award was to be allocated. It argued that only the Surrogate’s Court had the authority to do so.
The Surrogate’s Court disagreed and dismissed DSS’s objections to the petition to distribute the settlement assets to the distributees. The Supreme Court and the Surrogate’s Court have concurrent jurisdiction over estate matters. The Surrogate’s court noted that DSS did not raise any questions of act that the Supreme Court had not already settled. Thus, under EPTL § 5-4.4, because the allocation of the settlement made by the Supreme Court was entirely to wrongful death, DSS was not entitled to access any part of the money to settle what was owed to it.
Because it appears that there are no other assets in the decedent’s estate, neither DSS nor any other creditor would get paid. The result presents an exception to the normal course of settling an estate where creditors are generally always paid first.