Debts, Creditors & Taxes in Arizona Probate

A deceased person's debts do not vanish at death, but they also do not automatically become the family's debts. Arizona law sets out who pays, in what order, how long creditors have to make claims, and what happens when the money runs out. Tax obligations follow their own rules.

This article answers seven questions families and personal representatives ask about debts, creditors and taxes in an Arizona estate.

Questions Answered in This Article

• Who pays the debts of a deceased person in Arizona?
• Are children responsible for their deceased parents' debts in Arizona?
• Must the personal representative pay creditors before distributing inheritances?
• How long do creditors have to file claims against an Arizona probate estate?
• What happens if an Arizona estate does not have enough money to pay its debts?
• Does Arizona have an inheritance tax or estate tax?
• Does a deceased person's estate have to file an income tax return?

Who Pays a Deceased Person's Debts

Who pays the debts of a deceased person in Arizona?

The deceased person's estate pays the debts. The personal representative uses estate assets to pay valid claims before distributing anything to the heirs or devisees.

How it works:

• Creditors are notified. The personal representative publishes a notice to creditors and mails notice to known creditors (A.R.S. §14-3801).
• Creditors present claims. A claim is presented by delivering or mailing a written statement to the personal representative or filing it with the court (A.R.S. §14-3804).
• The personal representative allows or disallows each claim. A creditor whose claim is disallowed must take action within the statutory period or the claim is barred (A.R.S. §14-3806).
• Allowed claims are paid from estate funds, in the priority order required by A.R.S. §14-3805 if there is not enough to pay everyone.

Secured debts work differently. A mortgage or car loan stays attached to the property. The lender can enforce its lien against the collateral whether or not it files a claim (A.R.S. §14-3803(D)), and an heir who inherits the property takes it subject to the debt (A.R.S. §14-2607).

Nonprobate assets are not completely beyond creditors' reach. If the probate estate is insufficient, people who received nonprobate transfers, such as POD accounts or beneficiary deed property, can be required to contribute (A.R.S. §14-6102). However, life insurance proceeds and most retirement accounts paid to named beneficiaries are generally protected from the decedent's creditors under Arizona exemption statutes.

The personal representative does not pay the debts out of his or her own pocket unless he or she personally guaranteed them or breached a fiduciary duty.

Are children responsible for their deceased parents' debts in Arizona?

No, not simply because they are the children. A parent's debts are owed by the parent's estate. When the estate's assets are used up, any unpaid balance is generally uncollectible. Debt collectors sometimes call grieving family members and imply otherwise; they are not entitled to collect the parent's debts from the children's own money.

A child can become responsible for a parent's debt only in specific situations:

• The child co-signed or guaranteed the debt, such as a co-signed loan or a credit card on which the child was a joint account holder (not merely an authorized user).
• The child received estate property improperly, for example as an heir who received a distribution before valid claims were paid. The child may have to return the property, up to its value, to pay the claim (A.R.S. §14-3909, A.R.S. §14-3934).
• The child received nonprobate assets and the probate estate is insufficient; the child may have to contribute to the extent provided by A.R.S. §14-6102.
• The child signed a nursing home or other admission agreement as a responsible party in a way that created a personal obligation.
• The child is the personal representative and breached a fiduciary duty.

AHCCCS, Arizona's Medicaid program, can seek reimbursement from a deceased recipient's estate for certain long-term care benefits (A.R.S. §36-2935), but that is a claim against the estate, not against the children personally.

If a collector contacts you about a parent's debt, refer it to the personal representative and do not agree to pay from your own funds.

Must the personal representative pay creditors before distributing inheritances?

Yes. Valid creditor claims, expenses of administration and taxes come before inheritances. The heirs and devisees are entitled only to what remains after the estate's obligations are paid or provided for.

The rules that enforce this order:

• Priority of claims. If the estate cannot pay everyone, claims are paid in the order set by A.R.S. §14-3805, and heirs are last.
• Payment of claims. Upon expiration of the claim period, the personal representative pays allowed claims, after making provision for allowances, exempt property and administration expenses (A.R.S. §14-3807).
• Recovery from distributees. If a distributee receives property that should have gone to pay a claim, the distributee may have to return it (A.R.S. §14-3909, A.R.S. §14-3934).
• Personal representative liability. A personal representative who distributes before paying known valid claims can be personally liable for breach of duty (A.R.S. §14-3712).
• Closing statement. The closing statement must state that all claims presented, expenses and taxes have been paid or otherwise provided for (A.R.S. §14-3933).

Allowances are the exception. The homestead allowance, exempt property and family allowance belong to the surviving spouse or minor children ahead of creditors (except administration expenses) and can be paid early (A.R.S. §14-2402, A.R.S. §14-2403, A.R.S. §14-2404).

The practical approach is to wait until the creditor period expires, pay or reserve for every claim and expense, and then distribute, with a reasonable reserve for final tax returns and closing costs.

Creditor Deadlines and Insolvent Estates

How long do creditors have to file claims against an Arizona probate estate?

Arizona sets several deadlines.

• Published notice: four months. When the personal representative publishes the notice to creditors once a week for three consecutive weeks, creditors must present claims within four months after the date of the first publication or be forever barred (A.R.S. §14-3801(A)).
• Known creditors: four months or 60 days, whichever is later. Creditors the personal representative knows about must receive written notice. They have the later of four months after the first publication or 60 days after the notice was mailed or delivered (A.R.S. §14-3801(B)).
• Outside limit: two years. Even if no notice is ever published, all claims that arose before death are barred unless presented within two years after the death (plus any time remaining on a notice period that has started) (A.R.S. §14-3803(A)).
• Claims arising after death. Claims for things like the personal representative's contracts must be presented within four months after performance is due; other post-death claims within the later of four months after they arise or the two-year period (A.R.S. §14-3803(C)).
• Disallowed claims. If the personal representative disallows a claim and mails notice of disallowance, the creditor must start a court proceeding within the statutory period after the notice or the claim is barred (A.R.S. §14-3806).

Exceptions: mortgage and other lien holders can still enforce their liens against the collateral, liability covered by insurance can be pursued up to the policy limits, and the personal representative's own compensation and attorney and accountant fees are not barred by these deadlines (A.R.S. §14-3803(D)).

Because the clock starts with publication, the personal representative should publish the creditor notice promptly after appointment.

What happens if an Arizona estate does not have enough money to pay its debts?

An estate that cannot pay all of its debts is called insolvent. The personal representative must then pay claims in the order of priority set by A.R.S. §14-3805:

• 1. Costs and expenses of administration, including attorney fees and court costs.
• 2. Reasonable funeral expenses.
• 3. Debts and taxes with preference under federal law, such as federal taxes.
• 4. Reasonable and necessary medical and hospital expenses of the last illness, including compensation of caregivers.
• 5. Debts and taxes with preference under Arizona law.
• 6. All other claims, such as credit cards, personal loans and unsecured medical debt from before the last illness.

Within a class, no creditor gets preference over another; if the money runs out partway through a class, the claims in that class are paid pro rata. Lower classes receive nothing until higher classes are paid in full.

The homestead allowance ($18,000), exempt property (up to $7,000) and the family allowance for a surviving spouse or minor children have priority over all claims except administration expenses (A.R.S. §14-2402, A.R.S. §14-2403, A.R.S. §14-2404). In a small insolvent estate, these allowances can use up everything, and the summary administration procedure lets the personal representative distribute and close without paying general creditors (A.R.S. §14-3973).

Heirs receive nothing from an insolvent estate, but they also do not have to pay the shortfall. A personal representative of an insolvent estate should proceed carefully, because paying a lower-priority creditor before a higher-priority one can create personal liability.

Estate, Inheritance and Income Taxes

Does Arizona have an inheritance tax or estate tax?

No. Arizona does not have an inheritance tax, and it does not have a state estate tax. Arizona's estate tax, which was tied to the old federal state death tax credit, ended for deaths after 2005. Heirs do not pay Arizona tax simply because they inherit.

Federal estate tax applies only to very large estates. For 2026, the federal estate tax basic exclusion amount is $15 million per person, and a married couple can effectively shelter $30 million with proper planning and portability elections. Estates below the exclusion amount owe no federal estate tax, and most do not need to file a federal estate tax return (Form 706), although a surviving spouse may file one to elect portability of the unused exclusion.

Some other states do impose estate or inheritance taxes. If an Arizona resident inherits from someone who lived in, or owned property in, a state with an estate or inheritance tax, that state's rules may apply.

The tax that matters most for many heirs is income tax, and here inheritance is usually good news. Inherited property generally receives a new income tax basis equal to its fair market value at death (IRC §1014), which can eliminate built-in capital gain. In Arizona, a community property state, both halves of community property can receive a stepped-up basis at the first spouse's death (IRC §1014(b)(6)). Inherited IRAs and 401(k)s are the exception; distributions from them are taxable income to the beneficiary.

Does a deceased person's estate have to file an income tax return?

There are two different returns to think about.

The decedent's final individual return. The personal representative files the decedent's final federal Form 1040 and Arizona individual return for the year of death, covering income from January 1 through the date of death, plus any returns the decedent failed to file for prior years. A surviving spouse can usually file a joint return for the year of death.

The estate's fiduciary income tax return. Once a person dies, the probate estate becomes a separate taxpayer. Income earned after death on estate assets, such as interest, dividends, rent, and gain from selling estate property, belongs to the estate. Under IRC §6012(a)(3), the estate must file a federal Form 1041 for any taxable year in which it has gross income of $600 or more. Arizona has a corresponding fiduciary return, Form 141AZ.

Practical points:

• Get an EIN. The personal representative obtains a federal employer identification number for the estate and uses it for the estate bank account. Do not keep using the decedent's Social Security number.
• Choose a tax year. An estate may choose a fiscal year ending on the last day of any month within 12 months after death, which can help with timing.
• Distributions carry out income. Income distributed to heirs is generally taxed to the heirs, who receive a Schedule K-1, rather than to the estate.
• Notify the IRS. Filing IRS Form 56 tells the IRS who is acting for the estate.
• Large estates. Estates over the federal exclusion amount must file Form 706 within nine months after death, with an available extension.

A CPA experienced with fiduciary returns is a worthwhile hire for any estate that earns more than modest income or sells property.

Hire an Arizona Probate Attorney for a Flat Fee

Arizona probate attorney and former CPA Richard C. Keyt represents personal representatives in uncontested informal Arizona probates in every Arizona county for a $5,000 flat fee. The estate ultimately pays the fee, not the family members personally. Ricky has practiced law with his father, Richard Keyt, since 2012, and he handles the court filings, notices, creditor deadlines, inventory and closing documents so the personal representative can settle the estate without guessing.

To hire Richard C. Keyt, complete our Arizona Probate Questionnaire. If you have questions first, call Ricky at 480-664-7472, email him at rck@keytlaw.com, or book a free office, phone or Zoom video consultation.

To learn more, see our Arizona probate articles and Arizona probate FAQs.

Keep Your Own Family Out of Probate

Probate is what happens to families when someone dies without the right plan. Arizona estate planning attorney Richard Keyt has practiced Arizona law since 1979 and prepares custom estate plans built around a revocable living trust, which lets your family skip Superior Court probate entirely. The flat fee is $3,497 for one person and $4,497 for a married couple or life partners. See the 36 documents and services we provide.

To get started, complete our Arizona Estate Plan Questionnaire, call Richard Keyt at 480-664-7478 or email rk@keytlaw.com. See more of our Arizona Wills, Trusts & Estate Planning Articles.

This article provides general information about Arizona probate law as of October 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Statutes, court fees and procedures change, and every estate is different. Talk with an Arizona probate attorney about your specific situation.