Executor won’t have to pay mother’s debts out of pocket
Dear Liz: I was concerned about something you wrote recently about the responsibilities of an executor — that he or she can be held personally responsible for settling an estate. I am listed as executor of my mother’s estate. She lives with my sister, has no assets other than a car she owes money on and an $11,000 credit card debt. Would I have to pay this balance if she dies owing it?
Answer: You misunderstood. An executor can be held personally responsible for mistakes made in settling an estate. But if you follow the procedures laid out by your state’s probate court, you shouldn’t have a problem.
When your mother dies, you’ll be required to make an inventory of her assets (the car) and her debts (the car loan and the credit card balance). Any assets must first be used to pay her creditors, with the order determined by state law. If her car loan is worth less than her car, for example, the car typically would be sold, the car loan paid off and any remaining equity used first to pay the costs of settling her estate and her funeral expenses. If there’s money left over, it would be used to pay as much as possible of the credit card balance (assuming there are no other debts that would take priority, such as federal or state tax debt).
If there isn’t any money left to pay creditors, on the other hand, you simply inform them of that fact and they have to write off the balance as bad debt. You aren’t personally responsible for paying your mother’s debts, unless you cosigned on a loan or are a joint account holder on a credit card.
Where you might run into trouble is if you ignore your state’s laws, sell the car and pocket the difference or distribute it to other heirs. You also run into trouble by paying one creditor ahead of another in violation of state law. Because you can be held personally responsible for mistakes made in settling the estate, it would be smart to get an attorney’s help.
Credit cards must be paid before estate is distributed
Dear Liz: My oldest sister died recently. She owed a fair amount of credit card debt. She willed her condominium and the rest of her estate to my brother. Must my brother pay my sister’s debts from what he receives after he sells the condo, or are those debts considered closed?
Answer: Creditors typically must be paid before the remainder of an estate can be distributed to any heirs. That’s true even if specific items or dollar amounts are willed to specific people — they get what’s left only after the creditors get their share. If there isn’t enough money in the estate to pay the creditors in full, the executor of the estate is responsible for arranging settlements and the heirs typically get nothing.
Since it sounds as if your brother is also the executor, he would be wise to consult an attorney at this point. Executors can be held personally responsible — and sued — for any mistakes made in settling an estate.
Dad died without a will. What now?
Dear Liz: My father recently died and did not have a will or living trust. He has a joint mortgage with my mother and two car loans under his name only. Can we just keep paying all the loans even though he is no longer around? And if we do, when the debts are paid, who gets ownership? Lastly, should we call all of his creditors and let them know he has died? Please help, we are in dire need of advice.
Answer: Every state has rules that determine who gets what if someone dies intestate — without a will or trust. The court process where this is sorted out is called probate, and the surviving spouse is typically the executor or person responsible for settling debts and distributing assets. Mortgages and car loans stay with the property that secures them, which means whoever inherits the asset inherits the debt, according to attorney Mary Randolph, author of “The Executor’s Guide.”
If your dad’s estate was small — less than $500,000 — you or your mother may be able to handle the probate process with the help of an accountant. If his estate was larger or you feel you need more help, contact a probate attorney, who can help you get the process started and advise you about your state’s laws. And yes, your mom will need to notify creditors as well as any sources of income your dad may have had, such as employers, Social Security or a pension.
A guide for executors
Dear Liz: Though there seems to be an unlimited number of books and seminars concerned with establishing a family revocable trust or living trust, there also seems to be a shortage of information on the steps a person would take to settle and distribute the proceeds of the trust when the last trust creator dies. Lawyers seem reluctant to reveal the legal steps required. Are you aware of a good publication with a minimum of legalese?
Answer: The book you’re looking for is “The Executor’s Guide” by attorney Mary Randolph from self-help legal publisher Nolo. The book, currently in its fourth edition, outlines the duties of someone who settles an estate or trust, offering a week-by-week and step-by-step guide. You’ll find the book in regular bookstores, online bookstores and at Nolo’s site, at http://www.nolo.com, both in physical form and as an e-book.
The job can be complex and you could be liable for any mistakes, which is why many people choose a lawyer’s help. Such help is all but a necessity if you’re dealing with a large estate (more than $1 million) or with contentious relatives. Even then, “The Executor’s Guide” can give you a clearer idea of what’s involved.
The documents you need, but probably don’t have
Dear Liz: Good news! I wrote to you recently about being unable to find my elderly father’s signed living trust. However, just by luck (or maybe it was prayers to St. Anthony), the original copy of the trust has turned up! So that’s one problem solved. Now I hope you’ll tell people how important it is to sure your parents have filled out durable powers of attorney for finances and for health care. We had a health care power of attorney for him, but my dad never filled out the other kind, which has made it extremely difficult to handle his finances now that he’s had a stroke and is in a nursing home. Our only option may be to get a court to appoint a conservator of his estate but it sounds like that would be complicated, costly, and probably take a long time.
Answer: Every adult who cares about his or her family should have durable powers of attorney for health care and for finances. As you’ve discovered, the lack of these documents can cause huge problems, forcing families to go to court to get authority to make decisions.
Many people assume incorrectly that their spouses can just take over. In reality, without a durable power of attorney a spouse may not have the legal authority to transactions involving real estate, investments and other assets, even if they’re jointly held. If the spouse is also incapacitated or dies first, getting anything done—down to paying the light bill—can become impossible.
Your father’s living trust may have language that allows the successor trustee (the person who would manage his assets after his death) to make decisions regarding the assets in case of your father’s incapacity. But he still needed a durable power of attorney for finances so that someone else had legal authority to make decisions about assets held outside the trust and to pay bills.
