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William Rambaum, PA Clearwater & Oldsmar Elder Law Attorney

Creditors, Death, and Protecting Your Child’s Inheritance


Few people move through this world completely free from debt, and debt does not automatically disappear when someone dies. Trying to preserve as many assets from creditors as possible is everyone’s goal, and this desire typically extends to even to a beneficiary child’s creditors, who may try to reach their inheritance in the event of a bankruptcy or debt-related lawsuit.  While there are a number of estate planning strategies that enable a person to shield property from creditor claims, it is important to understand how creditors are paid in the event that some property must go through probate. Further, while survivors only inherit if there is property remaining after claims are settled, there may also be concerns about the beneficiary child’s outstanding debts, and the vulnerability of that inheritance to his/her own creditor claims.  A discussion of how creditor claims are handled following a person’s death, and some options for protecting a child’s inheritance from claims of his/her creditors, follows below.

Paying Creditors from an Estate

Beneficiaries are not generally responsible for the debts of their deceased spouse or parent. Any assets available for creditor claims usually must come from the deceased’s probate estate or trust. If there are not enough assets available to cover all claims, some will not be paid. However, before a creditor’s claim will be paid, a few procedural requirements must be satisfied. First, the personal representative must mail a Notice to Creditors for those that are known, or reasonable ascertainable, by certified mail.  In addition, the Notice must also be published in the local paper. Sending/publishing this notice triggers a deadline that requires most creditors to file their claims with the probate court within three months of the Notice’s first publication, or within 30 days of their receipt of the Notice by certified mail, if later, or the creditor’s claim may be barred from collection altogether.  Once creditor claims are established, Florida law prioritizes paying them in a set order. There are eight classes of creditors, which are paid in the following order:

  • administrative costs and fees, including the fees for the personal representative and estate attorney;
  • funeral, grave and interment expenses, up to $6,000;
  • debts and taxes given preference under federal law, including estate taxes and Medicaid reimbursement to the state;
  • medical costs incurred during the last 60 days of the deceased’s life;
  • a family allowance (currently a maximum of $18,000) to pay for the expenses of the surviving spouse and dependents while the estate is going through probate;
  • overdue child support;
  • debts incurred in keeping the deceased’s business operating; and
  • all other claims, including judgments for a debt.

Protecting a Child’s Inheritance

Aside from concerns about one’s own creditors, children may have their own issues with debt that parents may want to take into account. Typically, if a person directly inherits an asset, a creditor can take legal action to attach an interest in it and force a sale in order to collect on overdue obligations. This is true even for inherited IRAs and 401(k)s, which are no longer protected from the child’s creditors, both in bankruptcy and civil judgment actions.  In order to avoid this outcome, parents worried about a child’s debts should designate an irrevocable trust as the beneficiary, managed by an independent third party trustee, having complete discretion over distributions. This would block the child from accessing the funds, but it would, perhaps more importantly, prevent creditors from reaching the funds as well.

Talk to a Florida Estate Planning Attorney

The estate planning needs of each family are different, and requires the attention and knowledge of an experienced Florida estate planning attorney to create a plan that will address your goals and desires. William Rambaum, P.A. is a certified elder law firm that has years of experience addressing the unique needs of Florida’s seniors. If you have questions or concerns about your estate plan, contact William Rambaum’s Oldsmar office to schedule an appointment.


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