October 8, 2019
The laws governing the administration of a decedent’s estate in the State of Ohio provide for the collection of probate assets, payment of debts and expenses, and distribution to the beneficiaries according to the terms of the decedent’s Last Will and Testament, or if the decedent died without a Last Will and Testament, in accordance with Ohio law.
Declaration of insolvency
The Executor or Administrator (“Fiduciary”) of the decedent’s estate may ask Probate Court to declare the estate insolvent if the debts and administration expenses of the estate exceed the total value of the assets. If there are not sufficient assets in a decedent’s estate to pay all of the debts and expenses, Ohio provides a way to pay creditors depending on the “class” of the creditor defined below and the amount due.
Presentation of claims
Under Ohio law, all claims must be presented to the Fiduciary within six (6) months of the date of death of the decedent. After the expiration of this claim period, if the estate is deemed to be insolvent, the Fiduciary would report the insolvency to Probate Court, and provide a complete list of all debts and expenses, with the amount due for each. A hearing would be scheduled, with notice of the hearing served upon the surviving spouse of the decedent (if any), all persons having an interest in the estate as devisees, legatees, heirs, and distributees, and all creditors.
At the hearing, Probate Court would review the classification of the claims as provided by the Fiduciary, and if approved, would allow payment of the claims in accordance with Ohio Revised Code.
Classes of creditors and priorities
The class of a creditor is defined in Ohio Revised Code, which establishes ten (10) classes of claims (debts) and priorities, as follows:
- Class 1 – Costs and Expenses of Administration
- Class 2 – Funeral and Cemetery Expenses. This class provides up to $4,000 for funeral expenses and up to $3,000 for burial and cemetery expenses.
- Class 3 – Family Allowance of $40,000.
- Class 4 – Debts Entitled to a Preference Under the Laws of the United States.
- Class 5 – Expenses of the Last Sickness of the Decedent.
- Class 6 – Additional Funeral Expenses. If the total funeral expenses exceed the sum of $4,000 in class 2 above, then the funeral director can receive up to $2,000 more toward the decedent’s funeral bill in class 6.
- Class 7 – Nursing Home Expenses.
- Class 8 – Obligations to the State of Ohio.
- Class 9 – Debts for Manual Labor.
- Class 10 – Other Debts.
In the state of Ohio, the law is very clear that payments must be made in the specific order listed above. No payments may be made to creditors of one class until all of those of the preceding class are fully paid. If the assets are insufficient to pay all of the claims of one class, then the creditors of that class must be paid proportionately.
Once the approved claims and expenses are paid, the Fiduciary would report the receipts and disbursements to Probate Court for approval. Upon approval by Probate Court, the estate would be closed.
In certain estates where there are assets with value, it may make sense to proceed with an insolvent estate, as the fee for the Fiduciary of the estate is a Class 1 claim. Further, if there are sufficient assets to pay the Class 1 and Class 2 claims in full, the family allowance, as a Class 3 claim, would be paid to the extent of assets. Therefore, the decedent’s family could possibly benefit from this approach.