The death of a loved one is difficult to handle and often unexpected. Regardless of whether the deceased has a will, they may leave behind various debts and other obligations that the executor of the estate needs to handle. These debts need to be taken care of in a timely manner, and it’s important that the executor begins to address them quickly, as there is a time limit on certain probate processes. To help you better understand how to handle the debt of a lost loved one in probate, in this article we’ll look at several steps that you should take in order to make the whole process go as smoothly as possible.
1. Make a List of the Deceased’s Liabilities
The first step in handling the deceased’s debt is to make a detailed list of all of their liabilities. This can be a large list, and it may contain liabilities such as mortgages, lines of credit, storage fees, car loans, property taxes, condominium fees, credit card bills, utility bills, cell phone bills, or student loans. In determining these liabilities it may be helpful to consult any bills that you can find in the deceased’s home, or any bills that get sent to their email. If the deceased had an accountant you may also wish to check with them to get the most accurate picture of what they owe and create a list of contact information for all potential creditors.
Once you have a list of all potential creditors, you will want to decide which of the debts you recognize as proper, and which ones you think may be questionable. You will also want to decide which debts can and should be paid continuously and which ones should wait until you assess all your potential creditors. This will depend on several factors, including the amount of debts you expect, the amount in the estate, and the various needs of the estate and the beneficiaries. Letters will need to go out to all potential creditors you do not necessarily recognize as proper giving them an opportunity to file a claim.
After you publish a notice in the local paper, send out all proper notifications, and wait for the period for those unknown or possibly contested creditors to file their claims, you can then proceed with paying all remaining debts with proceeds of the estate.
2. Reimburse all Expenses
Once the probate process has been opened the executor of the will can see to it that all of the beneficiaries are reimbursed properly for any expenses that they may have incurred. In order to make these reimbursements, some or all parts of the estate may be liquidated. Most of the time, debts tied to a certain piece of property, such as a mortgage on real estate, are given subject to the debt, so reimbursement would not be proper for a beneficiary that has been paying a mortgage on inherited property. If the estate carried the debt, it may be more appropriate to get reimbursement from the beneficiary or offset their final distributions by the amount paid by the estate on the particular debt. It’s worth noting that as long as the mortgage is current, a lender is forbidden from cancelling or foreclosing on a loan because ownership is changing. A beneficiary should be able to seamlessly assume payments on the estate without regard to their creditworthiness.
3. Dealing With Debt Collectors
The FTC has ruled that debt collectors do not actually have the legal authority to pursue next of kin for outstanding debts. If there is not enough money in the estate to pay of all outstanding debts, heirs will not be held responsible for paying off those liabilities. This is good news for everyone involved, especially if an unexpected death occurs and a large list of liabilities is left behind. One of the exceptions to this rule is if a spouse died and there are outstanding debts on a joint account. In that situation, a portion of the joint account can be tapped to pay debts if there is not enough individually-held property. Also, in some cases a spouse may be held responsible for any medical debt that has been incurred. In order to find out exactly what debts the beneficiaries are responsible for you should consult with an attorney who is familiar with North Carolina law.
It’s worth noting that even if you are responsible for paying some of the deceased’s debt, you have certain rights regarding debt collectors. For example, they’re not legally allowed to call you early in the morning or late at night. Also, if you feel that a debt collector is harassing you for debts that are not legally yours, you can send them a cease and desist letter and they’re legally bound to stop harassing you.
4. What to do When Debts Exceed the Value of the Estate
In the event that the debts exceed the value of the estate, you have what’s called an insolvent estate. If you find yourself in this situation, you shouldn’t pay off any debts that you don’t have to. North Carolina will provide you with a priority list of all the debts that you should be paying. It’s important to follow the guidelines of this list carefully. If you pay some low priority debt you may find yourself responsible for any amounts that you shouldn’t have paid.
5. Paying Legal Fees
While it’s possible for the executor to perform the entire process without the aid of a lawyer, many people find that the process is much smoother with legal advice. A lawyer can ensure that all forms are filled out correctly, all of the details are taken care, and everything is handled in a timely manner. This is especially important in probate as there are numerous time deadlines that have to be followed.
Thankfully, legal fees that are incurred can be paid out of the estate assets. With proper documentation filed, legal fees are a high priority expense of the estate and are superior to most other debts. That being the case, we suggest that when handling the debts of an estate, you hire a lawyer to help you with the process. They’ll make the entire process simpler and free up your time to focus on what really matters. If you live in North Carolina and you need a probate lawyer, consider contacting Hopler, Wilms, & Hanna. Our legal practice is focused heavily on probate law, and we can help you to get all debts sorted out and taken care of as expeditiously as possible while maintaining the level of due care the case deserves..