One of the misconceptions that some people have regarding the probate in the estate administration process is that after you die your estate will immediately begin to distribute property to either your heirs or your beneficiaries under a will. Your property in this case means personal property, vehicles, real estate, and things like bank accounts and whatever is left in retirement accounts. That's not even to mention things like life insurance benefits that pass outside of probate. The assumption is that beneficiaries under a wheel can receive property almost immediately after you or another person passes away.
However, while it is true to an extent that property is distributed quickly after you pass away in some cases and many cases, it is the case that your estate must first verify that all creditors have been paid or satisfied. This is the element that some of us tend to overlook during the administration process. That is the need to ensure that people you owe money to are taken care of and no longer in need of payment. These creditors could be credit card companies, mortgage lenders, or other entities. The job of your estate administrator or executor will be to allow these folks an opportunity to come forward and make a claim on your estate if money is owed.
To those of you who may be expecting their payout from the estate of a loved one, this may be an especially significant shock to your system. Many times, people in your position will have plans for the money that they are going to receive from the estate of a loved one or other person who has recently passed away. If you know in advance, for example, that you will be receiving a sizable payout from the estate of a family member or friend then you may have promised that money to other people or otherwise have the money lined up in your type of plan where you can see to it that the money is put to good use.
Having a delay in having this money paid out for any reason can be enough to throw you off. What do you need to know heading into the estate administration process to prepare yourself for this type of situation? Are there steps you can take either as the executor of a will, administrator of a state, or even a beneficiary under a will to prepare yourself and your family for what might be coming next? This is the information that we are going to cover in today's blog post from the Law Office of Bryan Fagan. Namely, what happens during the estate administration process when creditors need to be paid. Specifically, what if the estate that you are interested in does not have enough money to cover its debts?
Debts do not always die with the person who passes away
In some circumstances, if a loved one passes away then their debts pass away with them. The best example of this is most federally insured student loans. Namely, if you pass away or become disabled then your obligation to pay the loan goes away permanently. However, many if not most deaths do not function this way. If your loved one passes away, then he or she will be expected to still pay the loan back. This is done through the person's estate. Their estate will be responsible for paying any remaining loans back before any family members or beneficiaries can receive money or property under that estate.
The real question that we need to answer is what happens if your relative passes away but there is not enough money or assets to sell in the estate to satisfy the deaths of the individual? Could the creditors start to pursue payment from family members? What if it was your spouse who passed away? Could you be in line next to have to pay money out of your checking or savings account towards your spouse’s debts? After all, Texas is a community property state been married people share many deaths.
On a federal level, you would not be obligated to pay the debts of a deceased relative even if it is your spouse. This means that you do not have to go into your assets and pay out of your pocket for the deaths of your spouse. As with many things under the law, however, there are exceptions to this rule. Let's walk through those exceptions before we go any further with today's blog post.
The first example is if you were a cosigner on the loan. This could occur in a situation where your spouse owned a small business and needed a loan to buy more materials for a certain product. Most small businesses do not qualify for a loan on their own so it would be up to your spouse on an individual level to qualify for financing. If his or her credit history or credit is a problem, she may have asked you to come on as a cosigner. If you agreed to act as a cosigner, then you are just as liable alone as your spouse. This is true even if the loan went to his or her business and did not impact you directly.
The next example that we could look to in terms of debts that may be owed after your loved one passes away would be that of health insurance costs. For example, if you're spouse incurred thousands of dollars in medical bills before their passing but did not have health insurance then you as their spouse may still be liable to pay that debt. The hospital company or corporation may come after you to have the debt satisfied. This is not a sure thing, however, and you should talk to experienced probate or estate planning attorney before becoming too worried.
Another consideration to make would be regarding following the laws of Texas when it comes to probating your spouse is a state. Therefore, it is a good idea for you to have an experienced probate attorney representing you if your spouse at state needs to go through probate. In that case, you must be sure that you are following all the laws of Texas in terms of completing the probate process. He missed his step whether on purpose or by accident then you may become personally liable for a debt of your spouse if he or she passes away and their estate pays out family members without paying all debts first.
however, the most significant consideration for us as Texans to think about in terms of being liable for the deaths of our spouse after you pass this regarding the Community property laws of Texas. We have already covered how some debts held by power spouses can potentially be determined as Community property. It may even be the case that this is a debt that you knew nothing about. However, you need to ensure that you are aware of any debts and follow the probate process as far as notifying potential creditors and allowing them to come forward before finalizing the estate.
Just from the perspective of covering your bases after the passing of your spouse, you may want to check with your credit report as well as any lenders that you owe money to along with your spouse period from there, you can determine whether You may end up owing money even after your spouse passes away. What I would not recommend doing is trying to ignore or otherwise sweep under the rug any debt that you think may be owed. These debts have a way of resurfacing at later dates, and you may be suffering from the interest or penalties associated with not paying the loan earlier.
Creditors have the ability, in certain circumstances, to freeze or otherwise get a court judgment preventing you from liquidating your loved one’s bank account if money is owed. This can be especially troublesome if you own the bank account along with your spouse. All in all, this is a risky situation to put yourself in. At least if you go through the probate process and are prepared you can go to some lengths where you can Understand what is upcoming and prepare for those events.
Debts held individually by your spouse
If all the debts of your loved ones are held in their name only then these are known as individual debts and must be satisfied by the estate alone in most cases. Again, Texas being a community property state complicates this to an extent but for the most part, if a debt is held individually by your spouse, then it will likely need to be paid out of their estate alone. If you are acting as the executor of your loved one’s estate, then you will need to sell or liquidate any assets to raise enough money to pay for the creditor’s bills. A probate court will line up the creditors in order based on several factors to determine who has first rights to the money in the estate. The bottom line is if there are insufficient assets in the estate to pay the debts creditors do not get paid. This is their only Ave towards payment, and they will have no additional options after the estate is administered.
There is a general list of priorities when it comes to insolvent estates where money is tight and not all creditors can be paid. Here is what you need to know in terms of what creditors have first rights to the money that is available in an estate. Instead, first, expenses regarding your loved one’s funeral or administration of an estate need to be paid in the first period these are immediate bills that have just arisen because of the passing of your loved one. The quote the court costs of going to probate court and any other fees associated with paying for the administration of their estate will come out of the estate itself.
Next, secured creditors have priority two any funds remaining after these initial expenses are paid. Secured creditors are those who have collateral tied to the debt that was incurred. An example of a secured creditor is a mortgage company. In that case, if you're loved one is your spouse and your name is on the note then we will need to continue to pay on that loan as agreed to in the formation documents. On the other hand, if you are spouse owns the mortgage in their name only then you may talk to the mortgage company about placing your name on the note and becoming responsible for it if that is your wish. Or you may wish to sell the home and satisfy the payment of the mortgage in that way.
After that, unsecured debts are the last debts that need to be paid out of an estate. These debts are credit card bills and things of this nature. A credit card company will lend your spouse money to pay firm things but it's not as if the credit card company can come and collect your blender or vacuum cleaner to satisfy that debt. Therefore, these creditors alright a bit of a disadvantage when it comes to having their bills paid given the lack of collateral securing their debt.
Where are creditors paid if the estate is not able to pay?
Let's say that you are the administrator of an estate or the spouse of an individual who just passed away. You may have questions about How creditors can be paid if the estate is insolvent. To close out today's blog post let's discuss Where debts can be paid if an estate is insolvent.
The first place that debts are paid from the would-be property which was not dealt with in the will. Vehicles, real estate, bank accounts as well as personal property can be sold to pay creditors after a deceased person has passed away. This is especially true if your loved one has passed away but is not promised all their property to go to individuals in the will. For example, if 20% of your spouse’s estate it's still available after the terms of the will or followed through with then that 20% of their estate is eligible to be sold to satisfy creditors.
Simply put, most people who passed away have debts of some kind. It is very rare for people these days to pass away and not have a debt period as a result, these debts must be resolved out of their state before the closing of the probate process. The types of debts that most people pass away with include medical bills, mortgages in general household expenses. If you are acting as the executor of an estate or will then you must notify any of their creditors. The creditors will then have an opportunity to file a claim against the estate to have the debts paid. Notices can be posted in local newspapers or other periodicals.
Another issue to consider when it comes to finalizing Penn State is if there are family members or other beneficiaries that are contesting this will of your loved one. A probate court judge would hear the grievances that are set forth and make decisions regarding how property is distributed. Your loved one having debts that need to be paid will also complicate this. Recall that no property can be distributed until debts are paid.
All of this is to say that you can benefit from having an experienced state planning attorney before finding yourself in this type of position. None of us know the ultimate moment that we are going to pass away. This can be an especially troubling thought if we do not have our affairs in order as soon as possible. Most of us reading this blog post have the idea that we are going to pass away while we are older and thus have time to prepare for the event. However, the reality is that none of us know the moment that we will no longer be able to make those preparations.
As a result, I recommend that you consider contacting an experienced estate planning attorney while you still have time. Looking at your state in your life to add a comprehensive level can go a long way towards helping you understand what sort of planning needs to go into your end-of-life scenarios at this time. It may also help you to get a better hold on what your debts are and begin to make plans on how to Deal with those debts sooner rather than later period
Questions about the material contained in today's blog post? Contact the Law Office of Bryan Fagan
if you have any questions about the material contained in today's blog post please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed estate planning and probate attorneys offer free of charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas estate planning and probate law.
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The Law Office of Bryan Fagan, PLLC routinely handles matters that affect children and families. If you have questions regarding divorce, it's important to speak with one of our Spring, TX Divorce Attorneys right away to protect your rights.
Our divorce attorneys in Spring TX are skilled at listening to your goals during this trying process and developing a strategy to meet those goals. Contact the Law Office of Bryan Fagan, PLLC by calling (281) 810-9760 or submit your contact information in our online form. The Law Office of Bryan Fagan, PLLC handles Divorce cases in Spring, Texas, Cypress, Spring, Klein, Humble, Kingwood, Tomball, The Woodlands, the FM 1960 area, and surrounding areas, including Harris County, Montgomery County, Liberty County, Chambers County, Galveston County, Brazoria County, Fort Bend County, and Waller County.