Priority of Estate Debts in California

As an estate planning attorney and CPA with over 35 years of experience here in Escondida, I’ve seen far too many families derailed not by the amount of debt a loved one leaves behind, but by the order in which those debts are paid. I recently had a client, Walter, whose meticulously crafted will was nearly rendered meaningless because an overlooked creditor secured a priority claim. He thought he’d accounted for everything, but a seemingly minor business loan, coupled with a poorly understood California statute, meant his wife received significantly less than he intended. The cost? A heartbreaking reduction of over $80,000 in assets earmarked for her care.

What Happens to Debt After Someone Dies in California?

When someone passes away, their estate – essentially everything they owned – doesn’t automatically disappear. It becomes subject to a legal process called probate, where a court oversees the settlement of their final affairs. A critical part of that process is determining the order in which debts are paid. It’s not a free-for-all; California law establishes a strict hierarchy. Understanding this hierarchy is paramount for both executors and beneficiaries. As a CPA, I also bring a unique perspective, because understanding the basis of assets is critical when debts are paid, and the remaining estate is distributed. The step-up in basis can significantly impact capital gains taxes for heirs, and proper debt management is essential to maximizing those benefits.

What Debts Are Paid First in Probate?

Certain debts take absolute priority, meaning they must be paid before anything else. These are typically expenses directly related to administering the estate itself. These include:

• Executor and Attorney Fees: The court allows reasonable fees for the executor’s time and the attorney representing the estate.
• Court Costs: Filing fees, appraisal costs, and other expenses incurred by the court are paid first.
• Funeral Expenses: Costs for reasonable funeral arrangements and burial are prioritized.

After these administrative expenses, the next tier of debts receives priority.

What Debts Have Priority Over Others?

This is where things get complex. California law (Probate Code § 524) outlines a specific order, though there’s often overlap and litigation. Here’s a breakdown:

• Secure Creditors: Debts backed by collateral – like a mortgage on a house or a car loan – are paid from the sale of that specific asset. The creditor doesn’t need to wait in line with unsecured creditors.
• Federal Tax Liens: The IRS gets a high priority, but even they aren’t first in line.
• California State Tax Liens: Similar to federal liens, the California Franchise Tax Board has a priority claim.
• Wages, Salaries, and Employee Benefits: Unpaid wages and benefits owed to employees are given priority, up to certain limits.
• Medical Expenses (with Limitations): While medical bills aren’t technically “priority,” they often receive favorable treatment, particularly those incurred during the last 120 days of life.

What About Credit Card Debt and Unsecured Loans?

Unfortunately, most credit card debt, personal loans, and other unsecured debts fall to the bottom of the priority list. This means they’re only paid if there are sufficient assets remaining after all the higher-priority debts are satisfied. It’s not uncommon for these creditors to receive only a partial payment, or nothing at all. This is especially true now, given that under the Corporate Transparency Act (CTA), executors must file an updated BOI Report with FinCEN within 30 days of the estate being settled or ‘Letters’ being issued. Failing to do so can lead to penalties.

What if the Estate Doesn’t Have Enough Assets to Cover All Debts?

If the estate is insolvent – meaning it doesn’t have enough assets to pay all debts – the law dictates a specific order of payment, even within the priority levels. This can lead to protracted legal battles. The executor has a fiduciary duty to act in the best interest of all creditors, but navigating these competing claims requires careful legal counsel. Furthermore, for deaths on or after April 1, 2025, executors may avoid full probate for personal property under $208,850. Notably, AB 2016 now allows a simplified ‘Petition to Determine Succession’ for a primary residence valued up to $750,000. Per Probate Code § 13050, you MUST exclude all California-registered vehicles and up to $20,875 in unpaid salary from the small estate calculation.

How do probate courts in California evaluate intent when a will is challenged?

In California, a last will and testament is reviewed under probate standards that focus on intent, capacity, and execution. Clear drafting reduces ambiguity, limits misinterpretation, and helps families avoid unnecessary conflict during estate administration.

When a will is drafted with California probate review in mind, it becomes a stabilizing roadmap rather than a source of conflict. Clear intent, proper authority, and compliant execution protect both families and estates.

Official Legal Standards and Resources for California Executors

• Mandatory Judicial Forms:
  Judicial Council of California – Probate Forms (DE Series)
  The official repository for all “Decedents’ Estates” forms; in 2026, this includes mandatory updated forms for the $208,850 Small Estate threshold and the new AB 2016 simplified petitions for primary residences valued under $750,000.
• Riverside County Local Rules:
  Riverside Superior Court – Executor FAQ
  A localized resource for Riverside County fiduciaries that outlines 2026 requirements for mandatory e-filing, Local Rule 7010 for remote appearances, and specific duties regarding the 4-month creditor claim period.
• Federal Tax Compliance:
  IRS Guidelines for Executors (Form 706 & 1041)
  The authoritative federal guide for filing a final 1040 and the estate’s 1041; it reflects the 2026 OBBBA update, which established a permanent $15 million individual estate tax exemption, effectively ending the previous “tax cliff” uncertainty.
• Statutory Duty of Care:
  California Probate Code § 9600 (The Prudent Person Rule)
  Codifies the “Prudent Person Rule,” stipulating that an executor must manage estate assets with reasonable care and skill; it remains the primary legal standard in 2026 for determining if a fiduciary is liable for mismanagement or “surcharge.”
• Digital Asset Authority:
  Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA)
  Access California Probate Code §§ 870-884, which governs an executor’s power to manage online accounts; it clarifies why service providers can legally block access to private emails and crypto-wallets without explicit “prior consent” in the estate plan.