As an executor, you will be making sure that the wishes of the deceased are carried out when it comes to divvying up the remaining estate. Although not an easy job, in most cases it is fairly straight-forward. It can become complicated, though, if the deceased left behind a lot of debts. The following guide can help you navigate the distribution of an estate with debt.
#1: Stop Estate Proceedings
It should go without saying that estate proceedings must come to a standstill during debt research and payback, but it can be tempting to allow family members to take small items – especially if the will indicates that they can. Unfortunately, these items may actually belong to the creditors. Do not allow any disbursement of property of funds to occur until after the debts have been handled. Otherwise, as executor, a probate court can find you guilty of estate mismanagement and require that you pay the estate's debts.
#2: Contact a Lawyer
You may have heard that a lawyer isn't always necessary. This is only true if you are in a state that doesn't require probate, the will or property disbursement is straight forward, no one contests it, and there are no outstanding debts owed by the estate. Your best option for dealing with anything that deals with debt is to contact a probate lawyer. Hiring a probate lawyer doesn't necessarily mean you will end up in court. Lawyers can also act as mediators for the executor, family, and debtor. They are also fully aware of both federal and local estate laws, so their advice in invaluable.
#3: Research All Debts
One of the first things a lawyer will do is ask for a list of all outstanding debts. You may need to get copies of the deceased's credit reports to find these debts. Creditors usually have up to one year to come forward, so new debts may arise during this process. In most cases, these are debts that pertain to the final care of the deceased, such as hospital bills.
#4: Document Everything
During the research and probate process, you must keep meticulous records of all the estate assets and receipts documenting any that are spent or liquidated. Make sure you only spend estate money to maintain the estate, and do not spend or liquidate any assets for any other purpose or to give to any surviving family members. As the executor, you can be found guilty of estate mismanagement if there is not enough funds in the estate to cover the outstanding debts at the end of probate. This can then make you liable for any remaining debts.
#5: Create a Viable Plan
Your attorney will help sort out the viable debts. These are usually limited to funeral expenses, final care costs, and income taxes. Credit cards and other forms of consumer debt can't usually be collected after death, unless there is a living cosigner on the account, such as a spouse.
In nearly all cases, the final viable debts listed above are paid from the estate first. If these are the only debts and no one contests the will, the estate may not go into probate court. If there are remaining debts, though, the remaining estate may require the decision of the probate court for final division. In some cases, the court may decide to pay outstanding shared debts, such as credit cards and car loans shared with a spouse. In other cases, the court may respect the wishes of the will, and the individuals on the shared credit accounts will be responsible for paying their part of the debt.
If the estate isn't large enough to pay all debts, probate court is a necessity. The debtors can't usually collect from surviving family members, so it is up to the court to decide who gets paid and how much each debtor receives. If you have specific questions about probate law, contact an attorney with a firm like Flaccus Law to learn about dealing with a will and debts legally.