[{"@context":"https:\/\/schema.org\/","@type":"BlogPosting","@id":"https:\/\/www.grossmcginley.com\/resources\/blog\/who-gets-paid-first-what-executors-need-to-know-about-pa-probate\/#BlogPosting","mainEntityOfPage":"https:\/\/www.grossmcginley.com\/resources\/blog\/who-gets-paid-first-what-executors-need-to-know-about-pa-probate\/","headline":"Who Gets Paid First: What Executors Need to Know About PA Probate","name":"Who Gets Paid First: What Executors Need to Know About PA Probate","description":"If your friend or loved one has passed away and you were named the Executor of their […]","datePublished":"2021-10-07","dateModified":"2021-10-11","author":{"@type":"Person","@id":"https:\/\/www.grossmcginley.com\/resources\/author\/yekaterina-bacenet\/#Person","name":"Yekaterina Bacenet","url":"https:\/\/www.grossmcginley.com\/resources\/author\/yekaterina-bacenet\/","identifier":59,"image":{"@type":"ImageObject","@id":"https:\/\/www.grossmcginley.com\/wp-content\/uploads\/2021\/10\/kathy-bacenet-square-150x150.jpg","url":"https:\/\/www.grossmcginley.com\/wp-content\/uploads\/2021\/10\/kathy-bacenet-square-150x150.jpg","height":96,"width":96}},"publisher":{"@type":"Organization","name":"Gross McGinley, LLP","logo":{"@type":"ImageObject","@id":"https:\/\/www.grossmcginley.com\/wp-content\/uploads\/2017\/10\/logopng-00436945-e1531508982151.png","url":"https:\/\/www.grossmcginley.com\/wp-content\/uploads\/2017\/10\/logopng-00436945-e1531508982151.png","width":600,"height":60}},"image":{"@type":"ImageObject","@id":"https:\/\/www.grossmcginley.com\/wp-content\/uploads\/2021\/08\/pa-probate.jpg","url":"https:\/\/www.grossmcginley.com\/wp-content\/uploads\/2021\/08\/pa-probate.jpg","height":800,"width":800},"url":"https:\/\/www.grossmcginley.com\/resources\/blog\/who-gets-paid-first-what-executors-need-to-know-about-pa-probate\/","about":["Blog"],"wordCount":960,"keywords":["Estate Administration","Estate Planning & Administration","Wills & Estates"],"articleBody":"If your friend or loved one has passed away and you were named the Executor of their estate, it’s now time to begin the process of settling accounts and making final asset distributions.\u00a0In the event that an estate has insufficient assets to pay outstanding debts of the decedent, the Pennsylvania Probate, Estates and Fiduciaries Code (PEF Code) sets out the order in which such debts must be paid. So, when you are dealing with payments to creditors, family members, state agencies and especially government entities like the IRS, who gets paid first? Read on to learn more about the PA probate process.Priority of Federal Tax Lien Payment in Insolvent EstatesNaturally many people would prioritize U.S. government agencies over others in terms of debt payment. What if you are the Executor of an estate which has insufficient funds to settle all accounts? According to PA Probate Statute \u00a7 3392, payments must be made in the following order:\tThe costs of administration;\tThe family exemption;\tThe costs of decedent\u2019s funeral and burial, and costs of medicines furnished to him within six months of death, including medical, hospital or nursing services performed for him within that time, services provided under the medical assistance program and services performed for him by any of his employees within that time;\tThe cost of a gravemarker;\tRents for the occupancy of decedent\u2019s residence for 6 months prior to his death;\tClaims by the Commonwealth and its\u2019 political subdivisions and\tAll other claims.While federal tax liens are not specifically enumerated in the above hierarchy, \u00a7 3392 is specifically \u201csubject to any preference given by law to claims of the United States.\u201d However, federal statutes governing the federal government\u2019s priority over claims and judgements may seem conflicting at first impression.In general, the \u201cSupremacy Clause\u201d of the U.S. Constitution dictates that federal laws take precedence over state laws and constitutions. This federal priority is further codified in 31 U.S.C.A. \u00a7 3713 (a)(1)(B) which states that \u201ca claim of the United States Government shall be paid first when\u2026the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor.\u201dHowever, the Federal Tax Lien Act of 1966, 26 U.S.C. \u00a7 6323, enumerates several exceptions for when a federal tax lien is invalid against other specific judgment liens or creditors.Claims arising prior to the Federal Tax LienUnited States v. Estate of Romani is the key case in which the Supreme Court harmonized the seemingly conflicting federal priority statute with the Federal Tax Lien Act. In Romani, the federal government opposed the administrator\u2019s transfer of real property to the decedent\u2019s creditor by arguing that the federal priority statute governed, and in turn placed higher priority to, the decedent\u2019s tax liens. The creditor had \u201cperfected\u201d their lien by recording it against the real property prior to the government\u2019s issuance of the Notice of Lien.The Court held that by the explicit terms of \u00a7 6323, the government\u2019s tax liens were invalid against an earlier recorded judgment lien. Analyzing the history of the priority statute as well as the policy objectives of the Tax Lien Act, the Court further stated that \u201cnothing in the federal priority statute\u2019s text or its long history justifies the conclusion that it authorizes the equivalent of a secret lien as a substitute for the expressly authorized tax lien that the Tax Lien Act declares “shall not be valid” in a case of this kind.\u201d 523 U.S. 517, 518 (1998).Further, the court stated that the Tax Lien Act is the latter, more specific statute which reflects \u201cCongress\u2019 judgment as to when the government\u2019s claims for taxes should yield to many sorts of interests\u201d in order ameliorate the harsh consequence of the priority rule on other secured creditors. As such, judgment liens recorded prior to the government\u2019s filing of a Notice of Lien, are governed by \u00a76323 of the Tax Lien Act and will have a higher priority claim over federal tax liens.Other exceptionsMany state courts have issued rulings interpreting the Tax Lien Act\u2019s application to other classes of claims. These rulings have also been adopted by the IRS Internal Revenue Manual which provides a comprehensive guide to the federal lien priority statutes. As set forth in the manual, the excepted classes of claims which can be paid before a tax lien include reasonable administrative and funeral expenses, as well as family exemptions and\/or allowances.Reasonable administrative and funeral expenses are permitted to be paid prior to federal liens as they are \u201cincurred for the general welfare of creditors.\u201d IRM 5.17.13.5. These expenses include court costs and filing fees, reasonable fiduciary and attorney fees, and expenses incurred to collect and preserve the estate assets.Similar to Pennsylvania\u2019s PEF code, many states provide for a payment of a \u201cfamily exemption\u201d to the surviving spouse or other family members who resided in the same household as the decedent for a period of one year prior to their death. Such payments have been held to not be \u201cdebts\u201d subject to federal priority and are in turn deducted from the gross estate prior to any payment of judgment liens.How Executors can navigate payments when funds are insufficientIn light of these exceptions, Executors navigating the PA probate process must take great care and seek proper legal advice of counsel with regard to payment of a decedent\u2019s debts. Especially when involving an insolvent estate, an Executor can uphold their fiduciary duty in preserving and administering estate assets under the guidance of an experienced estate attorney.\u00a0Kathy Bacenet serves\u00a0on the firm’s Estates team, helping individuals and business owners navigate simple and complex estate planning and administration matters.\u00a0"},{"@context":"https:\/\/schema.org\/","@type":"BreadcrumbList","itemListElement":[{"@type":"ListItem","position":1,"name":"Resources","item":"https:\/\/www.grossmcginley.com\/resources\/#breadcrumbitem"},{"@type":"ListItem","position":2,"name":"Blog","item":"https:\/\/www.grossmcginley.com\/resources\/\/blog\/#breadcrumbitem"},{"@type":"ListItem","position":3,"name":"Who Gets Paid First: What Executors Need to Know About PA Probate","item":"https:\/\/www.grossmcginley.com\/resources\/blog\/who-gets-paid-first-what-executors-need-to-know-about-pa-probate\/#breadcrumbitem"}]}]