Dec282025
Probate Q&A Series

If there is a tax refund or small amount left after paying claims, who receives it when the year’s allowance and a deficiency judgment are involved? – North Carolina

Short Answer

In North Carolina, any money that comes into the estate (including an income tax refund that belongs to the estate) must be applied in the required order of payment. If the surviving spouse has an unpaid year’s allowance deficiency judgment, the personal representative generally must pay that deficiency before paying lower-priority creditor claims and before any intestate distribution to heirs.

Separate from that, North Carolina law treats some small income tax refunds as the surviving spouse’s sole property (not an estate asset). Those amounts go directly to the spouse and do not get used to pay estate claims.

Understanding the Problem

In North Carolina estate administration, can an income tax refund or a small amount of cash that shows up late in the process be used to pay remaining debts, and if so, who gets paid first when a surviving spouse’s year’s allowance and a clerk-entered deficiency judgment are part of the estate? The decision point is whether that money is an estate asset that must follow the statutory payment priorities, or whether the law treats the refund (or part of it) as belonging to the surviving spouse outside the estate.

Apply the Law

North Carolina separates (1) who owns certain income tax refunds and (2) how a personal representative must pay obligations when estate assets are not enough. A year’s allowance is a statutory family protection that is assigned from the decedent’s cash and personal property. If the estate does not have enough personal property to satisfy the awarded allowance, the clerk can enter a deficiency judgment against the estate, and the personal representative must satisfy it later if assets come into the estate. The statute gives that deficiency judgment the same priority as the underlying year’s allowance. Only after higher-priority items are paid can any remaining balance be distributed to heirs under intestacy.

Key Requirements

  • Identify ownership of the refund: Some small federal and North Carolina income tax refunds are treated as the surviving spouse’s separate property by statute; only the estate’s share (if any) becomes an estate asset available for payment of obligations.
  • Pay in the required priority: When the estate is short on funds, the personal representative must pay administration costs and creditor claims in the order the statutes require, rather than choosing who gets paid.
  • Handle the year’s allowance deficiency correctly: If the clerk enters a deficiency judgment for an unpaid year’s allowance, the personal representative must pay it when later assets come into the estate, ahead of lower-priority claims and before any intestate distribution.

What the Statutes Say

Analysis

Apply the Rule to the Facts: The estate is paying creditor claims, administration expenses, and the surviving spouse’s year’s allowance, but a deficiency judgment is anticipated. If an income tax refund (or other small amount) later comes into the estate, the personal representative generally must treat it as an estate asset and apply it according to North Carolina’s priority rules, which include paying the year’s allowance deficiency judgment when funds become available. If, however, North Carolina law treats the refund (or a portion of it) as the surviving spouse’s separate property, that portion goes to the spouse directly and never becomes available for estate claims.

Process & Timing

  1. Who files: The personal representative (and sometimes an heir if no personal representative exists for a refund claim). Where: Refund claims go to the IRS and the North Carolina Department of Revenue; year’s allowance and deficiency issues are handled through the Clerk of Superior Court in the county where the estate is administered. What: Federal claims often require IRS forms used for refund claims by a representative; North Carolina refund claims typically use the state’s individual return amendment process. When: Refund timing depends on tax processing, but any estate share received should be posted as an estate receipt and then applied before final distribution.
  2. Allocate the refund first: Determine whether any part is the surviving spouse’s separate property under North Carolina refund-allocation statutes for small refunds or joint filings; only the estate’s portion is available for estate payments.
  3. Apply estate share to priorities: If a deficiency judgment for the year’s allowance exists (or is entered), pay it when the estate has sufficient assets, then pay remaining claims in the proper statutory order. If money remains after all lawful claims and administration costs are satisfied, distribute the remainder under intestacy.

Exceptions & Pitfalls

  • Assuming every refund belongs to the estate: North Carolina law can treat certain small federal or state income tax refunds as the surviving spouse’s sole property, and larger refunds can be split between spouse and estate depending on how the return was filed and the refund amount.
  • Paying general creditors “as money comes in” without re-checking priorities: A late refund can require paying a higher-priority family allowance deficiency before paying lower-priority creditors or making any heir distribution.
  • Confusing “deficiency judgment” with a normal creditor judgment: The year’s allowance deficiency judgment has the same priority as the year’s allowance itself, which can place it ahead of many ordinary unsecured claims.

Conclusion

In North Carolina, late-arriving funds such as an income tax refund must be handled based on ownership and statutory priority. Any portion that the law treats as the surviving spouse’s separate property goes to the spouse and is not used to pay estate claims. Any portion that belongs to the estate must be applied in the required order of payment, and a year’s allowance deficiency judgment must be satisfied when assets later come into the estate before lower-priority claims and before any intestate distribution. The next step is to file a final receipt/disbursement plan with the Clerk of Superior Court that reflects this priority.

Talk to a Probate Attorney

If a North Carolina estate is short on funds and a year’s allowance deficiency judgment or income tax refund is involved, an attorney can help sort out refund ownership, payment priority, and the steps needed to close the estate without creating personal liability for the personal representative. Call us today at (919) 341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.

Category: Probate Q&A Series

Author: jpierce

Attorney Jared Pierce is the founder of Pierce Law Group in Raleigh, North Carolina, a firm he established with a dedicated focus on probate administration and estate planning across North Carolina. Born and raised in the Republic of South Africa, Jared moved to Durham with his family in 2001, bringing with him a rich cultural background and a distinctive accent that often serves as a conversation starter.