Who is Responsible for Paying the Decedent’s Debts?

It’s not unusual for a person to pass and leave behind some unpaid debt or on-going financial obligations. If a loved one passes and his/her estate plan does not include a Trust, their financial affairs will be sorted out through the Probate Court process. The Probate Court will oversee the administration of the estate by the Personal Representative who will pay final bills and expenses, and then transfer remaining property to the beneficiaries named in the Decedent’s Will. If the Decedent passes without a Will, the Personal Representative will see the property is passed to the Decedent’s intestate heirs.


The lack of a Trust in an estate plan can sometime cause stress to surviving
relatives. With a Trust, property is already titled in the name of the Trust, so funds can be made available almost immediately to settle remaining debts. Conversely, the Probate Court process can take time before the Personal Representative can even be named, much less be given the authority to control the Decedent’s assets. While every situation is different, this article provides some tips when you find yourself collecting the bills for a loved one, and are not sure if you should pay them or wait until the Court provides someone with authority to do so.


WHAT TO DO
As a first step, it is wise to make a list of the Decedent’s liabilities. The amounts owed, and for what purpose, may guide you in determining what can reasonably be paid now, and what items should wait until a later date.


Next, you can contact the creditors and inform them of the Decedent’s passing. If certain accounts can be closed (e.g. unused internet, cable, or a variety of subscriptions), coordinate with family members to do so.


Concurrent with this, arrange the outstanding debts into two groups: those that can be paid off in full, and those that will continue throughout the probate process. On- going expenses likely include mortgages, property taxes, condominium and/or storage fees, and utility bills. (Note: even if the Decedent was living alone at the time of death, consider whether terminating all utilities will adequately protect the home until it can be sold or disbursed. Likely, you will want to keep at least some of these services.)

Now that you have this list, the next question is what should I, as a loved one or beneficiary, pay for now, and what should I wait for the personal representative to pay with estate assets? The safe answer is “nothing.” One notable exception to this is if you jointly have debt with the Deceased— e.g.., you cosigned a loan. If so, you are expected to continue making payments.


Some beneficiaries may feel compelled to make payments and will have to make a judgment call. If you keep receipts, and the personal representative later agrees your actions are consistent with the proper management of the estate, you will be reimbursed. If, for example, you are aware that a vehicle is being passed to you, you may wish to make loan payments to keep the loan current until a proper distribution can be made. Conversely, just making loan payments on any vehicle may not be advisable without knowing if the estate has sufficient assets to pay off all debts. If it does not, the Personal Representative may not have the ability to reimburse you.


DEBT THAT FOLLOWS PROPERTY
Note that, depending on the terms of the Will, outstanding debt may follow gift of a property. In other words, the Will may gift a certain beneficiary a home, subject to the mortgage. If that beneficiary wants the home, they would then be responsible to pay the mortgage. If you are not that beneficiary, the estate would not reimburse you and you would have to ask the beneficiary to do so. (As a side note, if you are a beneficiary related to the Decedent, the Garn-St. Germain Depository Institutions Act of 1982 will allow you to assume a mortgage. So if you are the Beneficiary of a home, and considering whether you will want to keep or sell it, the terms of the existing mortgage may come into play.)


Takeaway

Need advice in developing your estate plan, or have a recently deceased loved one with property that needs to be probated? Contact CASHMAN LAW today for a free consultation to see how we might help
understand the rules as you settle an estate.


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