Who Gets Paid First From an Estate in North Carolina?

When a loved one passes away, their estate will likely need to go through the legal process known as probate. One of the most important parts of the process is determining who gets paid first from an estate in North Carolina. State law provides a clear order of priority for paying debts and distributing assets, but it can be complicated. Working with a Waxhaw estate planning attorney can help.

The Role of the Executor

The executor is responsible for managing the estate by collecting assets, notifying creditors, paying debts, and distributing what remains to the beneficiaries. Before any of those distributions can be made, the estate’s debts must be settled in a specific order per North Carolina General Statute § 28A-19-6.

North Carolina Law prioritizes payments from the estate in this order before any assets can be distributed to beneficiaries. Debts must be settled in the following way:

• Costs and expenses of administration. The first to be paid are court fees, attorney’s fees, executor’s commissions, and other administrative costs. Without these payments, the estate can’t be properly managed or closed.
• Year’s allowance. North Carolina law provides a year’s allowance for the surviving spouse and any dependent children. As of 2025, the spouse is entitled to up to $60,000, and each dependent child may receive up to $1,000. This allowance is paid from personal property and will take priority over most creditor claims.
• Funeral expenses. Reasonable funeral and burial expenses are next, but only up to $3,500 is given priority status. Any amount beyond that might fall into a lower category. This four-figure cap is meant to ensure that final arrangements are accounted for, but they do not diminish the estate so that other creditors or heirs can’t be paid.
• Federal debts and taxes. The decedent may have income taxes or certain liens that are still owed to the federal government. These must be paid next, and there are usually strict deadlines and penalties for noncompliance.
• Medical expenses. Bills related to the decedent’s final illness are prioritized after federal obligations. This includes hospital stays, hospice care, and other end-of-life care costs.
• State taxes and debts. Debts owed to the State of North Carolina, such as income taxes and Medicaid estate recovery claims, are next in line. If the decedent received Medicaid benefits, the Department of Health and Human Services may file a claim against the estate.
• Judgments and liens. Court-ordered judgments and liens against the decedent’s property are paid after the state debts. These could include civil judgments, unpaid child support payments, personal injury lawsuits, or breach of contract issues.
• All other claims. Finally, general unsecured debts like credit card balances, personal loans, and utility bills are paid.

Choosing to hire an estate planning lawyer can help ensure all debts are settled appropriately.

What Happens If the Estate Is Insolvent?

An estate is considered insolvent if its debts exceed its assets. When this happens, the executor is responsible for paying as much as possible in the order of priority listed above. Lower-priority creditors will likely go unpaid. Don’t worry if you’re the executor in this situation, as you are not personally liable for these debts unless you mishandle the estate or pay creditors in the incorrect order.

The Next Steps for Executors

It is common for executors to worry about making costly errors, which can cause delays or legal issues. Your concerns are valid, but they are manageable with proper guidance. You don’t need to navigate the estate administration process alone. When you have an attorney on your side, you can have a better understanding of your options and ensure that every step is handled with care and precision.

FAQs

Q: What Are Administrative Expenses?

A: Administrative expenses are costs that are incurred while an executor is settling a deceased person’s estate. These may or may not include court filing fees, attorney fees, executor or administrator compensation, appraisal fees, publication costs for creditor notices, and expenses for maintaining estate assets. All these expenses are paid from the estate before any beneficiaries are given their inheritances.

Q: What Happens if There Isn’t Enough Money to Pay All Debts?

A: If an estate does not have enough money to pay all its debts, it is considered insolvent. Debts are then paid according to a legal hierarchy. Higher-priority costs, such as administration costs, taxes, secured liens, and funeral or medical expenses, are paid first. Lower-priority debts like credit card debts may receive partial payment or nothing at all. This will mean beneficiaries will receive no inheritance until any debts are settled.

Q: Can the Executor Choose Who to Pay First?

A: The executor cannot choose who to pay first. North Carolina probate law outlines a strict order of priority for paying estate debts and expenses. The executor is required to follow this law, which prioritizes administrative costs, funeral expenses, taxes, secured debts, and then other debt claims. If this order is not followed, the executor can be held personally liable.

Q: Am I, as the Executor, Personally Responsible for the Deceased’s Debts?

A: The executor of the estate is not personally liable for the decedent’s debts. Your responsibility is to use the estate’s assets to settle all obligations in legal priority. You should not have to use your personal funds to pay estate debts unless you are seeking reimbursement, and the estate has sufficient assets to do so.

Q: What Is a Notice to Creditors and Why Is It Important?

A: The executor is required to publish a Notice to Creditors in the local newspaper. This notice is meant to inform creditors of the decedent’s death and gives them a certain timeframe to file their claims against the state, typically three months. If a creditor does not contact the estate within this timeframe, their claim might be barred, and they would no longer be entitled to their money.

Hire an Estate Planning Lawyer

Handling the distribution of an estate can be a complex and often emotional process. Understanding the order in which debts and beneficiaries are paid is essential knowledge, especially when you can be held personally liable for mistakes. Contact the Law Offices of Huffman & Kendrick and gain the clarity and support you need to navigate this challenging process effectively.