How to handle debts in probate

If a loved one designated you executor of his or her estate or the court appointed you to handle the loved one’s probate, you may be feeling a little overwhelmed, and rightly so. Probate can be complex and last for months, requiring your careful attention and diligence.

The most time-consuming and sensitive part of probate is handling the debt left by the deceased. Arizona law has a particular hierarchy of creditors you must pay from the assets of the estate, and it is critical to take care of these before you distribute any assets to the beneficiaries.

Whom to pay

Your first step is to figure out what bills are outstanding in the estate. This may include payment for your loved one’s funeral costs if there was nothing set aside for this expense. Unless your loved one was well organized, you may have to search for information about outstanding debts, bills and lines of credit. Probate allows several months for creditors to claim payment from the estate, and you would do well to verify any claims from creditors of which you are uncertain.

Some bills you can pay off and be done with, such as credit cards, but others you may have to continue paying throughout probate, for example:

  • Utility bills
  • Mortgage and homeowner’s insurance
  • HOA fees
  • Vehicle loans

Your loved one may also have taken loans against life insurance, which the estate must repay. Neither you nor the other heirs should pay any bills or debts from your personal funds. If this happens, the estate should reimburse you as if you are one of the creditors before dispersing assets.

How to pay

There is always the possibility that you will not find enough money in the estate to pay all the creditors. If this happens, you may have to consult with the heirs to determine which assets to sell to pay what is due. Before selling any assets, however, you must receive permission from the probate court.

If the estate has sufficient funds to pay the creditors, you may still have to discuss with the heirs what they would like to do with assets that have loans attached to them, such as the home with a mortgage or vehicles with balances on their loans. The heirs may decide assume or refinance the mortgage or take over the payments on any vehicles. On the other hand, they may opt to sell the assets.

If you are left to administrate an estate that is complicated with debts and bills, you may find it helpful to seek professional assistance. The guidance of an attorney can ensure you make no mistakes that can leave you legally and financially responsible to the rest of the heirs. Additionally, an experienced lawyer can advise you on having a trust to avoid probate.

Call us at 623-294-2464 or contact us to schedule your consultation today.

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