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Recovering Debts on Behalf of Your Deceased Loved One: A Comprehensive Guide

Transactions often lead to debts owed to individuals, whether it’s lending money to a friend, conducting business deals, or leasing property. But what happens when the person to whom the money is owed passes away before they can collect? Can someone else step in to recover these outstanding debts? If you’re grappling with the passing of a loved one and believe they were owed money at the time of their death, here’s what you need to know.

Does the Debt Disappear with the Person?

The passing of an individual does not erase the debts owed to them. These debts survive the creditor’s death and become an asset of the deceased person’s estate. Such debts are considered part of the estate’s value and can be collected during the probate process, which concludes with the distribution of the deceased person’s assets, including money and property, to the beneficiaries as outlined in their will or designated by state law if there’s no will. Similarly, if the debt is owed to a trust established by the deceased person, the trust retains the right and responsibility to collect the debt after the trustmaker’s passing.

Who Can Act to Collect the Debt?

Before anyone can act on behalf of a deceased person’s estate, they must be officially appointed by the probate court. If the deceased person had a will, they typically designate someone they trust to serve as the executor (also known as a personal representative). In cases where no will exists, the probate laws of the state usually prioritize a family member to petition the court for appointment as the estate’s administrator. Once appointed, the executor or administrator has the authority and duty to act on behalf of the estate to collect the outstanding debt. In situations where the debt is owed to a deceased person’s trust, the successor trustee assumes the obligation to attempt debt collection.

How Can an Executor or Trustee Determine Outstanding Debts?

An executor or trustee who is a surviving spouse may be well-acquainted with the deceased person’s assets, including any outstanding debts and the debtors’ identities. However, a non-spouse executor or trustee might have limited knowledge about the deceased person’s assets. Regardless, all executors or trustees should thoroughly review the deceased person’s essential documents and financial records to identify any indications of owed money. Ideally, they might discover written loan agreements, mortgage contracts, or other formal agreements that offer clear proof of the debt’s existence and its terms of repayment. Even without formal documentation, other written evidence, such as emails or text messages indicating a debt owed to the deceased person, can help establish the debt’s existence and conditions. Moreover, if the deceased person maintained records, books, or canceled checks showing the debt’s existence and regular payments from the debtor, these can serve as evidence for the executor or trustee. While written evidence holds more weight, the executor or trustee might also rely on witnesses who overheard discussions between the deceased person and the debtor regarding a loan or other business transactions. Debtors themselves might admit to the debt when questioned by the trustee or executor.

What Occurs After Discovering the Debt?

Once the executor or trustee learns of a debt owed to the deceased person’s estate, their first task is to ascertain whether there are any outstanding amounts—payments due at the date of death. For example, if Bob loaned $5,000 to his friend Julie, who was obligated to make monthly payments of $250 on the fifteenth of each month until the loan was fully repaid in December 2024, and Bob passed away on January 16, 2024, the executor needs to determine Julie’s payment status, collect any overdue payments (including interest) as of Bob’s death, and monitor future payments.

After identifying the debt owed to the estate, the executor or trustee should send a formal written notice to the debtor. This notice should include information about the deceased person’s passing, the date of death, the estate’s status as the new creditor, and instructions to make future payments to the estate through the executor or trustee. The notice should also provide the contact details of the executor or trustee and any other information necessary to facilitate debt payments. It’s essential to initiate collection efforts for past-due amounts and arrange for the payment of any future obligations, such as rental payments for lease agreements extending beyond the date of death.

What if the Debtor Refuses to Pay the Debt?

While an executor or trustee initially seeks debt collection by contacting the debtor and requesting payment, they may resort to legal means if these efforts prove fruitless. This may involve having an attorney send a demand letter to the debtor or filing a lawsuit on behalf of the estate to recover the outstanding debt.

How We Can Assist

If you’re grappling with the loss of a loved one and are either the executor of their will or seeking appointment as the administrator of their estate, we can guide you through the probate process. Similarly, if you’re a successor trustee, we can provide assistance in administering your loved one’s trust.

Among an executor or administrator’s crucial responsibilities is the collection, preservation, and inventorying of all assets within the deceased person’s estate, including owed debts. Seeking the counsel of an experienced estate planning attorney can ease the process during this emotional and challenging period following the loss of your loved one. If you require assistance, please contact us today to schedule an appointment.

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