Creditors or Beneficiaries: Who Gets Paid First in California?

When someone passes away in California, their estate often includes more than just money and property—it also includes debts. Credit card bills, medical expenses, mortgage balances, and personal loans don’t simply vanish. So, who gets paid first: the people or institutions owed money (creditors), or the loved ones named in a will or trust (beneficiaries)?

This misunderstood aspect of estate administration often causes conflict; understanding payment hierarchy is crucial for beneficiaries and creditors.

California’s Priority Rules: The Legal Order of Who Gets Paid

In California, probate law doesn’t leave anything to guesswork when it comes to paying off an estate’s debts and distributing what’s left to beneficiaries. The law sets out a strict order of operations—a financial to-do list that must be followed step by step. And the person in charge of this process, known as the personal representative (also called an executor if named in a will, or an administrator if appointed by the court), is legally bound to follow it to the letter.

Why is this so important? Because if the personal representative makes a mistake—like paying a beneficiary before settling a valid creditor claim—they can be held personally liable. That means they could be sued by unpaid creditors or even be required to pay those debts out of their own pocket. For this reason, the executor’s job is not just ceremonial or clerical—it comes with real legal responsibility.

This legal framework helps protect everyone involved:

Creditors get a fair shot at recovering what they’re owed.
Beneficiaries receive their inheritance only after the estate’s obligations are cleared.
The estate representative has a rulebook to follow, which can help avoid disputes and lawsuits.

Skipping steps, ignoring claims, or misunderstanding priorities isn’t just risky—it can delay the probate process, reduce the estate’s value, and trigger costly litigation. That’s why every experienced estate attorney will advise executors to follow California’s priority of payments exactly as outlined in the Probate Code.

The Basic Rule: Debts Before Distributions

Before any assets can be distributed to beneficiaries, the estate must first pay off its debts, expenses, and taxes. If an estate lacks sufficient assets, beneficiaries may receive nothing until all valid creditor claims have been addressed.

The Hierarchy of Payment (California Probate Code § 11420)

Here’s how California law prioritizes estate payments:

Expenses of Administration
These include court filing fees, attorney fees, appraiser fees, and the executor’s compensation.
Secured Debts
Mortgages or loans backed by collateral (like a house or car). These are paid out of the value of the secured property or satisfied by transferring the property with the debt attached.
Funeral Expenses
Reasonable costs of burial or cremation services.
Expenses of Last Illness
Medical bills incurred during the decedent’s final illness.
Family Allowance
Temporary support provided to surviving spouses or minor children during estate administration.
General Debts
This includes credit cards, unsecured personal loans, and outstanding bills.
Distributions to Beneficiaries
Only after all of the above are satisfied can the remaining assets be distributed according to the will, trust, or intestate succession laws.

What Happens When There Isn’t Enough Money?

Not every estate is flush with assets—and in some cases, the debts left behind by the decedent can far exceed the estate’s total value. When that happens, we’re dealing with what’s known as an insolvent estate—one that doesn’t have enough money to pay all of its bills, let alone distribute inheritances.

So, what does California law say in this situation?

Creditors Get Paid First—But Only in Order

California Probate Code §11420 outlines a legal hierarchy that dictates who gets paid and in what order. When the estate is insolvent, the personal representative (executor or administrator) must go down this list step by step—paying as many claims as possible until the money runs out.

For example:

If there’s only enough money to pay administrative expenses and part of the funeral costs, everything else (medical bills, credit cards, even beneficiary distributions) goes unpaid.
Lower-priority creditors may receive nothing at all—and they can’t go after the heirs or beneficiaries unless those individuals received distributions they weren’t entitled to.

Beneficiaries Are Last in Line

It’s a harsh truth, but worth repeating: Beneficiaries only receive assets after all debts, taxes, and administrative costs have been paid. That means if the estate is underwater, beneficiaries may walk away empty-handed—even if they were named in the will or trust.

For example:

Suppose your aunt’s estate includes a $300,000 home and $50,000 in bank accounts—but she owes $400,000 in medical bills, credit card debt, and legal fees. That home may have to be sold, and the bank account drained, to pay off creditors. As a named beneficiary in her will, you might receive nothing—because there simply isn’t anything left after the debts are paid.

No One Can “Jump the Line”

Sometimes, heirs or family members try to claim certain assets early—especially personal property or sentimental items. But if those assets are needed to pay debts, they may need to be returned or liquidated. California law doesn’t allow for informal “grabs” from the estate before debts are settled. Doing so can result in legal consequences and personal liability.

Can Creditors Come After You?

Generally, no—creditors can’t come after individual beneficiaries for the decedent’s debts. The debts are tied to the estate, not the person. The exception is if:

You were a joint account holder or co-signer on a loan.
You received a distribution from the estate that should have gone to pay a creditor. In that case, the creditor could petition the court to have that asset returned.

In short, when there isn’t enough money in the estate to cover everything, creditor claims take legal priority, and beneficiaries may need to adjust their expectations. It’s a difficult and often emotional reality—but understanding how the process works can prevent future disputes and avoidable disappointment

The Role of Timely Creditor Claims

When someone dies, their creditors don’t automatically get paid. In California, there’s a formal process in place—and strict deadlines creditors must follow to assert their right to collect what they’re owed. If they miss these deadlines, they can lose their legal claim forever, even if the debt is legitimate.

This has major implications for both creditors and beneficiaries, and it’s one of the most important moving pieces in any estate administration.

Creditors Must Act Fast

Under California Probate Code § 9100, creditors have only a limited window of time to file a claim against the estate:

Once the court appoints a personal representative (executor or administrator), a creditor has just four months from the official notice to file their claim.
If a creditor is notified later in the process, they typically have 60 days from the date of notice—whichever is later—but still within a firm time limit.

Missing the deadline means the claim can be barred, regardless of its size or legitimacy.

Example: If a hospital is owed $30,000 for a decedent’s final medical bills but fails to file a claim within the statutory timeframe, it likely forfeits the right to collect—even if there are enough assets in the estate to cover the bill.

How Claims Are Filed

A creditor must submit a formal Creditor’s Claim (Judicial Council Form DE-172) to the probate court and serve a copy on the estate’s personal representative. The claim must include:

The amount owed
A description of the debt
Any supporting documentation (like contracts, invoices, or promissory notes)

Once filed, the executor or administrator reviews the claim and has the authority to:

Accept the claim in full
Partially accept it
Reject it entirely

If a claim is rejected, the creditor has just 90 days to file a lawsuit against the estate to pursue payment. Otherwise, the claim is considered resolved and cannot be revived.

Why This Matters for Beneficiaries

For beneficiaries, the creditor claims process can feel like a frustrating delay. You may wonder why you can’t receive your inheritance right away. But here’s the key point: the estate cannot legally distribute assets to beneficiaries until all timely creditor claims are resolved.

That’s because if a distribution is made before satisfying a valid debt, the executor can be personally liable—and so can the beneficiary who received the premature distribution.

In short:

Timely creditor claims pause distributions until they’re either paid or formally rejected.
Executors must wait out the claims window before moving forward with asset transfers.

What If You Disagree With a Claim?

Whether you’re a beneficiary or the personal representative, you may feel a creditor claim is exaggerated or even fraudulent. In that case, the estate can contest the claim—but it must be done formally. This often involves rejecting the claim and defending against it in court if the creditor sues.

Working with a probate attorney is crucial here, especially in cases involving large or questionable debts. The right legal strategy can protect the estate’s value and ensure that only valid claims are paid.

This timeline is crucial. If you’re a beneficiary, understanding that the estate can’t be distributed until all timely creditor claims are resolved helps manage expectations.

What About Trusts?

Are Trusts Safe from Creditors? Not Always.

One of the biggest myths in estate planning is the idea that trusts are completely shielded from debts. While it’s true that revocable living trusts help avoid probate, that doesn’t mean they’re immune to creditor claims. In California, creditors can still come knocking—especially if the trust holds most or all of the decedent’s assets.
For more insights into common estate planning pitfalls, including how to avoid costly mistakes, check out this Estate Planning Pitfalls: Avoid Costly Mistakes.

Let’s break it down.

Revocable vs. Irrevocable Trusts

Not all trusts are treated the same when it comes to creditors:

Revocable Trusts: These are the most common type of trust used in estate planning. While the trust-maker (also called the settlor) is alive, they have full control over the trust and its assets. That also means the assets are considered part of their estate—and vulnerable to creditor claims after death.
Irrevocable Trusts: Once established, these cannot be changed or revoked by the settlor. If properly structured and funded, assets in irrevocable trusts are typically protected from personal creditors—but they come with more complexity and less flexibility.

So, if your loved one had a standard revocable living trust, creditors can likely still file claims against the trust’s assets after the settlor passes away.

Trustee Duties: Creditors Still Have Rights

After someone with a trust dies, the successor trustee (the person appointed to manage the trust after death) must still deal with debts, taxes, and expenses before making any distributions to beneficiaries.

This includes:

Notifying known creditors, often through a special legal notice
Giving creditors a specific window of time (usually 120 days) to file claims
Reviewing and resolving valid claims
Ensuring that assets are not distributed prematurely

If the trustee skips these steps and gives away assets before handling creditor claims, they could be personally liable for unpaid debts—and beneficiaries may have to return what they received.

Trust Beneficiaries: Why Your Inheritance May Be Delayed

Even if you’re named in a trust and not a will, you may still have to wait to receive your share of the inheritance. Why?

Because:

Debts must be resolved first
Taxes (like final income taxes or property taxes) must be paid
Trust administration costs (attorney fees, appraisals, etc.) must be covered

Once those are settled, the remaining assets can be distributed according to the trust’s terms.

Can Creditors Force the Sale of Trust Property?

In some cases, yes. If the trust includes a home or other valuable property, and there aren’t enough liquid assets (cash, stocks, etc.) to cover valid debts, the trustee may be required to sell or refinance trust property to pay those bills. That can delay distributions or change what a beneficiary thought they were inheriting.

Are There Any Protections?

Yes—but they’re limited and must be handled properly:

A trustee can send a Notice to Creditors under Probate Code § 19003, triggering a 120-day claim deadline.
If no claim is filed within that time, most debts are barred.
Some assets, like retirement accounts or life insurance with named beneficiaries, may pass outside the trust and estate altogether, offering greater protection from creditors.

Trusts are powerful tools—but they don’t erase debt.
In California, even when someone uses a trust to avoid probate, the legal obligation to settle debts still exists. Trustees have a duty to handle creditor claims responsibly, and beneficiaries should understand that receiving their inheritance may take time—especially if creditors are in line first.

If you’re a trustee or beneficiary dealing with trust administration and creditor claims, don’t go it alone. A trust and estate attorney can help ensure the process is handled correctly and fairly—for everyone involved.

When Beneficiaries and Creditors Collide

Conflicts often arise when beneficiaries feel entitled to their inheritance while creditors are still waiting to be paid. Some common points of contention include:

Perceived delays in receiving inheritance checks
Suspicion of executor misconduct in handling estate funds
Disputes over whether a claim is valid or inflated
Family members being both creditors and beneficiaries (e.g., a son who loaned money to his late mother and is also named in her will)

In these cases, the court may need to intervene to ensure the executor or trustee is honoring their fiduciary duty to treat all parties fairly and follow the law.

Final Notes

In California estate administration, creditors come before beneficiaries. While this may frustrate heirs, the law ensures financial obligations are honored before distributing inheritances.Executors and trustees have a legal duty to prioritize debts, expenses, and taxes before making any distributions.

Understanding this process helps set realistic expectations and prevents unnecessary conflict during an already stressful time. Whether you’re a creditor trying to collect a valid debt or a beneficiary awaiting your share, knowing your place in the legal hierarchy is essential.

For personalized guidance on how these rules apply to your situation, consult with a California trust and estate litigation attorney. When creditor claims and inheritance rights collide, professional legal insight can make all the difference. Talk to us.