Be Careful with Debts of the Deceased

Anyone charged with handling someone’s estate, whether they be trustee, executor or personal representative – or even just an estate administrator, takes on a degree of risk.

Having legal counsel help you through the process may be a very good idea, in spite of the costs. If you don’t comply with state laws dictating estate settlement, you may become personally liable for the debts owed by the estate.

Your fiduciary duties in handling the estate include making sure that all estate bills and creditors are paid, if the estate has enough money.

Unfortunately, some people die with nothing in their estate’s but debt. End of life medical bills, combined with effects of market downturns and overextended credit use may well bring the deceased’s estate below zero.

If there isn’t enough money in the estate to pay the bills of the decedent, the creditors are generally out of luck, except in certain cases.

Who can be responsible for paying the deceased’s debts?

According to the FTC article, Debts and Deceased Relative

“You may be responsible for the debt if you:

• co-signed the obligation
• live in a community property state, such as California;
• are the deceased person’s spouse and state law requires you to pay a particular type of debt, like some health care expenses;
• or were legally responsible for resolving the estate and didn’t comply with certain state probate laws.

Under the FDCPA, collectors can contact and discuss the deceased person’s debts with that person’s spouse, parent(s) (if the deceased was a minor child), guardian, executor, or administrator. Also, the FTC permits collectors to contact any other person authorized to pay debts with assets from the deceased person’s estate. “

Beware creditors that try to emote you into believing you or other heirs are personally responsible for the decedent’s debts. In most cases you are not. Since the great recession in 2008/2009 wiped out a lot of estate assets, collecting debt from dead people has become big business.

The New York Times  reported:

“Improved database technology is making it easier to discover when estates are opened in the country’s 3,000 probate courts, giving collectors an opportunity to file timely claims. But if there is no formal estate and thus nothing to file against, the human touch comes into play.

The law varies from state to state, but generally survivors are not required to pay a dead relative’s bills from their own assets. In theory, however, collection agencies could go after any property inherited from the deceased. “

Why do trustees distribute before making sure the bills are paid?

Pressure to distribute quickly may cause some trustees to lack estate assets to pay bills of the estate when they surface later.

If you distribute too quickly, you may miss bills that come due only once a year or you may find accounts that aren’t apparent – such as ones that generate no physical bill.

How can bills in the decedent’s name keep accumulating after death?

Failure to close out certain accounts, such as credit cards, utilities, magazine subscriptions, auto renewal items on the deceased’s credit or debit card, and etc. and etc can accidentally allow new charges to the dead person’s account!

You or a beneficiary may be liable for these bills. You have a fiduciary responsibility to the beneficiaries. If they include the deceased’s spouse, he or she may be responsible for the debts of the deceased, as noted in the above FTC article. As trustee, you may be expected to educate the beneficiary.

I know of a case where a man died in 1983. His wife lived with him and stayed in the home until her death in 1995 – she never changed the utility bills to her name, but she paid them all. The son living with them inherited the property via a transfer on death clause in the title. He never changed the utility bill either. Now the poor dead man has an unpaid bill of more than $800, because the son stopped paying the bill! As it turns out, the son was the trustee of the living trust used to distribute the considerable assets of the man. The utility company probably has a good case against him if they decided to pursue the debt.

How long can creditors come after the deceased’s debt?

Creditors usually have a specific and limited time frame to post a claim against the estate, according to Debt.org,   that can be around 6 months. However, if the estate wasn’t distributed properly, allowing creditors time to post a claim, they may be legally able to come after the assets already distributed to the beneficiaries. This alone may be cause for taking the estate through probate even though you wouldn’t otherwise need to do so.

Take your duties as the estate settler seriously.  They may have unexpected repercussions.