Collecting Debts on Behalf of Your Deceased Loved One

Tuesday, December 5, 2023

People often loan money to friends or business partners, or rent houses or rooms to tenants, or engage in other financial transactions that require payments to be made by a tenant or other debtor. However, sometimes a person passes away before receiving money owed to them. If your loved one has died and you believe tenants or others owed them payment at the time of their death, keep the following information in mind.

Does the Debt Die with the Person?

Death of a landlord or other individual does not erase any outstanding debt. These debts survive the death of the creditor and are legally owed to the deceased creditor’s estate. In fact, any outstanding debts are considered assets (in other words, money and property of value) of the estate. As part of the probate process that distributes the assets of the deceased, the estate is entitled to collect these debts on behalf of beneficiaries named in the will, or on behalf of beneficiaries designated by state law. Similarly, a trust set up by the deceased has the right and obligation to collect any owed debt after the trustmaker’s death.

Who Can Collect the Debt?

An executor must be appointed by probate court to act on behalf of a deceased person’s estate. Any formal will, written by the deceased will likely name a trusted person to act as their executor (also known as a personal representative or administrator of the estate). If the deceased person did not create a will, a family member or other individual given priority in their state’s probate law can petition the court to name them as the executor. Once appointed, the executor has a duty to collect outstanding debts on behalf of the estate. As mentioned previously, this duty also applies to debts owed to a deceased person’s trust.

How Can an Executor or Trustee Discover If the Deceased Person Was Owed Money?

A spouse acting as executor or trustee may be familiar with the deceased’s assets, including their spouse’s debtors and the amount owed. A non-spousal executor or trustee may be less knowledgeable about these assets. Any executor or trustee, including a spouse, should examine all important papers and financial records for evidence of money owed to the deceased.

Ideally, the executor will be able to locate a loan agreement, mortgage document, or other written contract that provides clear evidence of the debt and the terms of repayment. However, in the absence of a formal contract, other written evidence – including emails or potentially even text messages – can be used to establish the amount and terms of the debt. Additionally, if records, books, or cancelled checks from the deceased show the existence of the debt and regular payments made, this document can be used as evidence for continued debt collection.

While written documents serve as the most conclusive evidence in establishing a debt’s existence, the executor or trustee may also rely on any individuals who witnessed or participated in the discussion of a loan or other business transaction. Similarly, debtors themselves may make statements to the trustee or executor acknowledging the debt.

What Happens After the Debt Is Discovered?

After the executor or trustee discovers a debt owed to the deceased, they should first ascertain whether all currently owed payments have been made. For instance, let’s say that Richard loaned $5,000 to his friend Natalie, under the condition that Natalie makes monthly repayments of $250 on the fifteenth of each month. If Richard and Natalie made this agreement in April 2022, the loan should be fully repaid in December 2024. If Richard passes away on January 16, 2024, the executor would need to determine if Julie was current on her payments, collect any monthly payments she owed at the date of Richard’s death (including potential interest), and monitor future payments.

Once the executor or trustee becomes aware of a debt owed to the deceased person’s estate, they should provide a formal written notice to the debtor that includes the deceased’s date of death and the status of the estate of the debtor’s new creditor. This notice should also include the name and address of the person or institution to which future payments should be sent. The administrator of the estate should make efforts to collect any past due amounts, and to facilitate any continuing payments such as rent.

What If the Debtor Will Not Pay the Amount Due?

If the executor or trustee’s attempts to collect a debt prove unsuccessful, they may need to seek legal aid to send a demand letter to the debtor or file a lawsuit on behalf of the estate to collect the amount owed.

We Can Help

If your loved one has passed away and you wish to be appointed as the administrator of their estate, we can help guide you through the probate process. Likewise, we can provide assistance in administering a deceased loved one’s trust.

An executor has a duty to prepare an inventory of all assets in the deceased person’s estate, and to collect and protect these assets, including debts owed, so they can be distributed to any beneficiaries. Trustees similarly have a duty to maintain relevant records and to collect debts owed to the deceased person’s trust. Seeking help from an experienced estate planning attorney can help put your mind at ease by ensuring all legal obligations are fulfilled during the stressful and emotional time following the death of a loved one. If you would like help, call us at 630-424-1100 today to set up an appointment.

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