What happens if a relative dies, and leaves outstanding mortgages or other debts? Which beneficiaries will see their inheritances reduced by payment of those debts?

The first thing to look at is the decedent’s will.  If the will directs the executor to pay expenses or debts in a certain manner, those wishes should be followed.  Otherwise, in order to pay the estate’s debts and expenses of administration, or other items like a family allowance, probate code section 21402 delineates the order in which property is to be sold:

  1. Property not disposed of by will.
  2. Property devised or bequeathed to a residuary legatee.
  3. General gifts to non-relatives.
  4. General gifts to relatives.
  5. Specific gifts to non-relatives.
  6. Specific gifts to relatives.

However, absent a specific direction in the will, debts on property held in joint tenancy by the decedent and spouse are not to be paid by the estate.  Also, the above will be modified in the event there are pretermitted (inadvertently omitted) children or spouses.

The estate’s representative may use discretion as to which property to sell, whether to sell all or a part of decedent’s interest, and whether to sell at public auction or private sale.

As far as personal liability for debts, the probate code provides that the decedent’s surviving spouse’s liability will not exceed the fair market value at date of death (minus liens and encumbrances) of the surviving spouse’s one-half of community and quasi-community property and the value of decedent’s property passing to the surviving spouse without administration.