Debts payments are a part of the probate proceedings.
You have debt.
Maybe it is from credit cards.
Perhaps it involved a mortgage.
It may even include health care costs.
What happens to these debts when you die?
According to a recent The Balance article titled “Dealing with Debts and Mortgages in Probate,” this depends on your estate plan.
Let us say you did not create a revocable trust.
Your estate will pass through probate.
Before your chosen heirs or the heirs designated by state law can receive a penny, your debts must be settled by the executor of your estate.
Does your executor have to wait for probate proceedings to start before he or she deals with debts?
How does one start?
Begin by listing all liabilities.
What should you include?
- Car or boat loan
- Cellphone bills
- Credit card bills
- Condo feeds
- Federal and state income taxes
- Home equity loans
- Lines of credit
- Loans against life insurance policies
- Loans against retirement accounts
- Personal loans
- Property loans
- Reverse mortgages
- Utility bills
Once you have this list, you can categorize them.
You should divided into administrative and final bills.
What are these?
Administrative bills involve condo fees, mortgages, property taxes, and utility bills.
Essentially, these are bills ongoing during probate.
Final bills involve income taxes, credit card bills, personal loans, cellphone bills, and loans against life insurance policies or retirement accounts.
Note: all debts, taxes, and expenses are paid off only while the probate estate is open.
These bills should be paid from the estate by the executor.
They should not be paid out of the pocket by heirs or the executor.
The one exception would be if an heir wants to keep an asset, such as a home or car, and continue to pay down the debt.
The executor must choose the bills to pay and the assets to liquidate to pay the final bills.
Note: No debts, taxes, or expenses of the estate should be settled without the counsel of the attorney assisting with the probate.
The process will be especially difficult if you die intestate with no will.
How can you simplify all of this "administrivia" for your executor and your beneficiaries?
You should create a comprehensive estate plan with an experienced estate planning attorney.
He or she will help you create a plan to meet the needs of your family and makes life easier on those you leave behind.
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Reference: The Balance (March 21, 2019) “Dealing with Debts and Mortgages in Probate”