When someone dies leavings property, debts, and a mortgage, and if they did not have a living trust, probate is required to sort everything out. Probate is the process of paying off the deceased person's final bills and expenses and transferring their property to their beneficiaries. Dealing with debts can begin before probate is officially opened.
You should make a complete list of the decedent's liabilities, even before the probate estate is opened. It will help streamline the probate process later. Bills and statements you should look for include:
* Lines of credit
* Condo fees
* Property taxes
* Income taxes
* Car and boat loans
* Personal loans, including student loans
* Credit card bills
* Utility bills
After you've made a list of liabilities, divide them into two categories: (1) Liabilities that will be ongoing during probate--these will be administrative expenses, and (2) liabilities that can be paid off in full after the probate estate is opened--these are the decedent's final bills. Administrative expenses include the mortgage, condo fees, property taxes, storage fees and utility bills. These must be kept current until the estate closes. To the extent possible, the estate beneficiaries should pay these bills until the probate estate is opened. The deceased's final bills include income taxes, personal loans, loans against life insurance and retirement accounts, credit card bills and cellphone bills. The estate beneficiaries should not pay any final bills out of their own pockets, but should wait and let the estate's Personal Representative deal with them in the process of settling the estate.
The PR will be responsible for taking over payment of administrative expenses and settling the decedent's final bills after probate is open. This will include determining which debts are valid and to what extent, then assessing which, if any, of the decedent's assets should be liquidated or sold to pay ongoing estate expenses and final bills.
If the beneficiaries have continued to pay some or all of the decedent's bills prior to the probate estate being opened, the PR should then reimburse them accordingly, with one exception. If the decedent left real estate to a specific beneficiary in his Will and that beneficiary intends to assume or refinance the mortgage against the property, he should not necessarily be reimbursed
A beneficiary who inherits a house or other real estate may be able to assume the mortgage during or after probate according to the terms of the Garn-St. Germain Depository Institutions Act of 1982 (12 USC sec. 1701j-3). This federal law forbids lenders from calling loans due or foreclosing when ownership changes hands due to death. The mortgage must typically be current to qualify.
If you have questions about settling a decedent's estate and the payment of their final bills, give us a call at 253.858.5434 to make an appointment today.