Detailed Answer
Under Virginia law, a personal representative (often called an executor) holds a strict fiduciary duty to both heirs and creditors. Before approving or paying any creditor claim, the executor must confirm that the estate has sufficient liquid assets. This step protects the executor from personal liability and ensures the estate remains solvent through the probate process.
1. Inventory the Estate Assets
The executor must file an inventory within 14 months of appointment under Va. Code § 64.2-516. This document lists all estate assets—cash, real property, personal property and investments—at fair market value. Filing the inventory creates a clear snapshot of available funds. Va. Code § 64.2-516
2. Provide Notice to Creditors
Next, the executor must notify potential creditors as required by Va. Code § 64.2-524. Creditors then have six months to present their claims. During this period, the executor should hold liquid assets in accessible accounts to cover valid claims. Va. Code § 64.2-524
3. Determine Payment Priority
Virginia law sets a priority order for distributions under Va. Code § 64.2-640. First come administration costs and funeral expenses, then taxes, and finally general creditor claims. The executor must confirm that enough funds remain after each priority tier before paying lower-tier claims. Va. Code § 64.2-640
4. Reconcile and Liquidate Funds
Before paying any claim, reconcile bank and brokerage statements. If liquid assets fall short, the executor may need to sell non-cash assets—like real estate or investments—to raise funds. The sale process itself must follow court approval if the will or Virginia Code requires it.
5. Hypothetical Example
Imagine an estate that lists $30,000 in checking and savings, a $200,000 home, and a $20,000 retirement account. After filing the inventory and waiting for creditor claims, the executor calculates taxes and funeral costs totaling $15,000. That leaves $35,000 in liquid cash. A creditor submits a $40,000 claim. The executor cannot pay in full until either more assets convert to cash or the creditor agrees to a reduced amount.
Helpful Hints
- Obtain all bank, brokerage and retirement account statements immediately after appointment.
- Keep a running balance sheet to track incoming and outgoing funds.
- Consult a probate attorney before liquidating major assets.
- Serve creditor notices quickly to start the six-month claim period.
- Maintain clear records of all communications with creditors.
- Review Virginia Code §§ 64.2-516, 64.2-524 and 64.2-640 for detailed guidance.
Disclaimer: This article is for educational purposes and does not constitute legal advice. Always consult a licensed attorney for advice on your specific situation.