text: Expert Reviewed
  wikiHow to Handle a Decedent's Uninsured Medical Expenses
  Four Methods:Paying the Decedent’s Debt out of a Solvent EstatePaying the Decedent’s Debt out of an Insolvent EstateHandling Uninsured Medical Expenses as a Surviving SpouseManaging Tax DecisionsCommunity Q&A
  When someone passes away, their debts do not simply go away. The debts of a decedent are attributed to the decedent's estate, which must pay off the debts using assets from the estate. One of the most common debts a decedent leaves behind is medical debt. Medical debt can be accumulated later in life, especially if an illness or injury lead to the decedent's death. Whether the medical debt is insured or uninsured, it still must be paid. If you are the estate administrator, it will be your duty to collect estate assets and creditor claims. Once you do this, you will pay creditor claims differently depending on whether the estate is solvent or insolvent. In addition, in some states, the surviving spouse may be required to pay the debt if the estate cannot. Apart from paying off the debt, you must also consider the tax consequences of such debts on the decedent's income tax return and estate tax return.
  Steps
  1
  Paying the Decedent’s Debt out of a Solvent Estate
  - 1Read the decedent’s will. When the decedent has a will, their property will be placed in a legal entity called an estate. The estate's value will be increased or decreased based on creditor claims and asset accumulation. As the estate administrator, it is your duty to collect estate assets and tally up valid debt claims.[1] It is important to read the will so you can understand what assets will be a part of the estate and how the decedent wants the assets handled.
  - For example, the decedent might pass most of their property outside of the probate process, which means the estate will not include those assets. Also, the will might direct you about the manner in which assets should be used to pay debts, including uninsured medical debts. Some wills might state that cash, bank accounts, and securities should be used first to pay off debts. The will might also state that real property should be the last thing liquidated to pay for outstanding debt.
  - Make sure you understand the wishes of the decedent and follow their directions as best as possible.
  - 2Make an accurate accounting of estate assets. Once you understand the wishes of the decedent, you need to account for all of the estate's assets so you know what is available to pay for outstanding debts. When you make an accounting of estate assets, you need to calculate the dollar value of each of those assets. Once you calculate the dollar value of each asset, you will add them together to get the total value of the estate. If the estate's asset values exceed the value of the estate's debts, the estate is considered solvent.[2]
  - Some assets can be easily valued. For example, if the decedent left a bank account behind, its value will simply be the amount of money left in the account.
  - However, other assets can be more difficult to value. For example, if the decedent left personal property (e.g., home furnishings and kitchenware), you might have to have the property appraised in order to determine its fair market value.
  - 3Pay the decedent’s uninsured medical expenses. Because uninsured medical expenses will be considered an estate debt, it will need to be paid with assets from the estate. If the decedent's estate is solvent, you can pay the medical debt whenever you wish. If you know the estate will be solvent and the medical expenses are relatively small, you might consider paying the debt early to get it out of the way. However, if you are not sure whether the estate will be solvent and the medical debt is large, you might wait to pay the debt until you are sure you have enough money to pay all the debts.
  2
  Paying the Decedent’s Debt out of an Insolvent Estate
  - 1Check the state’s insolvency statute. An estate is considered insolvent when its debts are greater than the value of its assets. When this happens, not every debt will be able to be paid off. State law will dictate the manner and order in which estate debts will be paid from an insolvent estate. Each insolvency statute will have an order of priority in which you must make debt payments.
  - Each category of debt defined in the state statute must be paid off in full before you can move on and start paying debts from the next category.
  - Because each debt within a single category is given equal priority, if the estate does not have enough assets to pay for all the debts in a single category, the creditors in that category will all receive a pro rata share of the available assets.[3]
  - Once every estate asset has been liquidated and used to pay debts, no other creditor will be paid (absent an exception to the rule - e.g., the necessaries doctrine).
  - 2Determine when medical expenses are to be paid. While each state's insolvency statute will vary, the general order of priority is usually the same. For example, in Virginia, you must pay debts in the following order:[4]
  - Costs and expenses of estate administration (e.g., probate fees, attorneys' fees, administrator commissions)[5]
  - Family and homestead allowances (e.g., a sum of money paid to support the surviving spouse)
  - Funeral expenses currently not to exceed $4,000
  - Federal debts and taxes
  - Certain medical and hospital expenses, which only extends to the decedent's last illness and is capped at between $425 and $2,150
  - State debts and taxes
  - Debts obtained while decedent was acting as fiduciary
  - Local debts and taxes
  - All other debts, which will include any outstanding uninsured medical expenses that were not paid for earlier
  - 3Start making payments in accordance with the law. To start making payments from an insolvent estate, compile the estate's debts into their respective categories. For example, if the estate has probate fees and attorneys' fees, you will put those debts in the same stack at the top of your list. If the estate has federal debts, you will put them in the same stack but they will be placed in line after the more senior debts. Once you have lined up all of the estate's debts in the order they must be paid, you can start making payments.
  - Start by adding up the total amount of debt owed in the most senior category (i.e., costs and expenses of administration). If the estate's value exceeds the value of these debts, pay all of these debts in full. For example, assume you are paying the expenses of administration, which equal $3,000. Next assume the estate's assets currently equal $10,000. In this example, you will be able to pay all of the expenses of administration, in full, and the estate will be left with $7,000.
  - Once one category of debt has been paid in full, you can move to the next category. If at any time the total value of debts in a single category exceeds the value of the remaining estate, you will not be able to pay that category of debts in full. Instead you will have to pay each debt in the category on a pro rata basis. For example, assume you are paying five different federal debts, each one amounting to $1,000. Next assume you only have $2,500 in estate assets to pay the debt. In this example, each debt makes up 1/5 of the category, so each creditor will receive 1/5 of the remaining estate assets. Here, each creditor in this category will receive $500 (i.e., 1/5 of $2,500).
  - 4Pay the medical expenses if funds are available. If funds are available when you reach a category that includes the decedent's uninsured medical expenses, you will pay them in full, up to the capped amount set by law, or on a pro rata basis depending on the situation.
  - If you are able to pay the medical expenses in full, the debt will be satisfied.
  - If you hit the cap and still owe money, you will have to push the debt down the priority list to the next applicable category. If any money remains when you reach that category, you will again have to decide whether you can pay the rest of the debt in full or whether you will have to pay a pro rata share.
  - If you can only pay a pro rata share because not enough assets are available in the estate, you will pay the appropriate share and the rest of the medical debt will be discharged unless an exception exists (i.e., it will go away and the creditor will simply lose the money owed to them).
  3
  Handling Uninsured Medical Expenses as a Surviving Spouse
  - 1Contact a lawyer. In some states a surviving spouse might be liable for the medical debts of the other spouse if the decedent's estate cannot pay the debt itself. If you, as an administrator, have done an accounting and determined that the uninsured medical expenses might go unpaid because the decedent's estate is insolvent, you should contact a lawyer. Probate lawyers will quickly be able to advise you on the possibility of the medical debt being pushed off on a surviving spouse. To find a lawyer, contact your state bar association's lawyer referral service. After answering a few general questions, you will be put in contact with various qualified lawyers in your area.
  - The lawyer will be paid with assets from the estate and you will not be personally responsible for paying the lawyer for his or her services. However, if the fees are unreasonably high, the probate court may reject them and you may be responsible for paying them on your own. Also, it may be difficult to hire a lawyer if there are not enough estate funds available to pay him or her.
  - 2Ask about the common law “necessaries doctrine.” When you talk to the lawyer about the situation you are in, you should first explain your concern about not being able to pay off the medical debts of the decedent. Next, ask the lawyer about the common law necessaries doctrine. Under this doctrine, if the medical expenses were incurred by a spouse who was still married to the other spouse when death occurred, and the deceased spouse does not have the assets to pay the debt, the surviving spouse would be liable for them.
  - This doctrine is exceedingly uncommon in part because of its discriminatory nature against women. This is the case because the original doctrine only flowed one way (i.e., women had to pay for the man's medical expenses but not the other way around). For example, Alabama found the doctrine unconstitutional and does not apply it anymore.
  - However, some states have modified the doctrine so that it is gender neutral and flows both ways (i.e., both a husband and a wife can be liable for the other's unpaid medical expenses). For example, in New Jersey, both spouses are liable for the necessary expenses incurred by either spouse. The income and assets of the surviving spouse will only be exposed if the deceased spouse does not have assets of his/her own to satisfy the debt.[6]
  - 3Determine if the doctrine applies. Ask the lawyer if the necessaries doctrine applies in your state, and if so, to what extent it applies. If the lawyer tells you there is a distinct possibility the surviving spouse could be liable for the remaining medical expenses that can't be paid by the decedent's estate, you might have to (or want to) take certain actions to inform the surviving spouse.
  - 4Inform the spouse of your findings. If the doctrine applies, you should tell the surviving spouse about it. This will give them a chance to consult an attorney about the debt, the doctrine, and how it can be handled.
  4
  Managing Tax Decisions
  - 1Define medical expenses. As the estate's administrator, you will not only have to handle the estate's debts but you will also have to file the decedent's income tax return and estate tax return. When a decedent has outstanding qualified medical expenses, you will have to determine how to handle them for federal tax purposes. The Internal Revenue Service (IRS) usually defines medical expenses as only those that are not reimbursed (i.e., uninsured expenses). For tax purposes, you must reduce the decedent's medical expenses by the amount of insurance reimbursement the decedent receives.[7]
  - For example, if the decedent was charged $10,000 for medical care but $7,000 was covered by insurance, the decedent's medical expenses would amount to $3,000.
  - 2Analyze your options for the tax treatment of medical expenses. If medical expenses are paid by the decedent before death, those expenses are deductible on the final income tax return (Form 1040) you will fill out on his or her behalf. In addition, if the decedent's medical expenses are paid out of the estate within one year of death, you can treat the expenses as paid by the decedent when they were incurred (i.e. you can deduct them on Form 1040).
  - 3Pay the expenses and claim them on the decedent’s income tax return. If the estate is able to pay the uninsured medical expenses and they are paid within one year of the decedent's death, the expenses can be deducted on Form 1040 only to the extent they exceed 10% of the decedent's adjusted gross income (or 7.5% if the decedent was 65 or older).
  - If you elect to make this deduction, you will do it by attaching a statement to the return. The statement will simply say you are making the election.
  - If you elect to take the Form 1040 deduction, you will be barred from counting any unpaid debt as a liability on Form 706 (i.e., you can only choose one option).[9]
  - 4Count the unpaid medical expenses as liabilities on Form 706. If the decedent is wealthy (i.e., they have an estate worth around $5.43 million), you should consider counting unpaid medical expenses as liabilities because liabilities will reduce the value of your taxable estate. If the decedent's estate exceeds the filing threshold ($5.43 million), reducing the value of the estate by including more liabilities will help you reduce the amount of estate taxes owed.
  - The estate tax rate (40%) is much higher than most income tax rates, which means you want to decrease your estate value as much as possible if you are hovering around the filing threshold.
  - However, if the estate is not even close to the $5.43 million threshold, you should automatically take the income tax deduction if the estate can pay the medical expenses.[10]
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