I suspect that this question has a very straightforward answer, but when you’re dealing with family and money nothing is straightforward. So here’s the setup:
A man has three sons, Able, Baker and Charlie.
One of the sons, Able, loans the father $100,000.
The father dies, and his will states that everything should be equally divided among his three sons.
The value of the estate is $200,000.
So does the estate simply repay Able $100,000 and then divvy up the remaining $100,000 among all three? Is it any more complicated than that?
The estate’s debts are paid before any money goes to the beneficiaries. If the estate’s debts are greater than its assets, then the beneficiaries get nothing.
Exactly what the OP and Lemur said. The fact that a single individual is both creditor and beneficiary of an estate does not impact his rights as either.
The working rule on estate distribution is:
Pay debts and funeral expenses.
Distribute any specific bequests.
Distribute the remainder among the remainderman heirs.
Able as creditor is entitled to the $100,000 before any distribution to heirs occurs. If the man had left $5,000 to his lifelong friend Dufus, that would be paid out next, before the remainder of the estate is distributed to the three sons. Able as heir is then entitled to one-third of the net estate after all debts and specific bequests if nay have been dealt with. So if the estate’s gross value is $200,000 and the only debt is the outstanding loan to Able, Able gets repaid that $100,000 first, and then the remaining $100,000 is distributed $33,333.33 each to Able, Baker, and Charlie. Able is getting 2/3 of the gross estate, but that’s not relevant – he was entitled to repayment of his loan before the net estate gets distributed, exactly as if the $100,000 was due to Zigmund, a non-heir creditor. And the fact he has received repayment of the loan as a creditor of the estate does not affect his position as one of the three heirs, entitled to a third of the net estate.
If the gross estate is only $50,000, then the executor/administrator puts the estate into bankruptcy, Able gets $50,000 as creditor and is out the other $50,000 he is owed, and Baker, Charlie, and himself as heir get nothing whatsoever, because the net estate is zero.
The only “gotcha” is if the other heirs challenge whether the $100,000 was a loan or a gift. The moral of the story is always do the paperwork when loaning sometihng, even if you really really trust the recipient. Once the lawyers (and Uncle Sam) get involved, even the best intentions may not be enough to repay you.
If there is no documentation of the loan and Baker or Charlie want to be Dicks about it, the executor cannot hand over $100,000 to Able on Able’s say-so.
Hopefully if Pappy’s bank account jumped $100,000 one day, there’s some paper trail to back up the justification.
What about executor’s fees? Let’s say the will stipulated $5000 for the executor, and that the executor was one of the sons. Is that considered a debt or a specific bequeath?
Also some things aren’t part of the estate. In Illinois, I know if you have a bank account to Mr RoadRunner POD Mr Coyote. as soon as Mr RoadRunner died that bank account goes to Mr Coyote and isn’t part of the estate anymore.
Also different states make allowances for children and wives. So if Mr RoadRunner has 100,000 his state may say his wife and kids get a third BEFORE any claim to the rest of the state by a creditor.
This is to protect the spouses and children.
So while it’s somewhat straightforward you have to remember not all assets will be counted as part of the estate for purposes of paying creditors. It varies from state to state.