How to Handle Debts and Mortgages in Your Estate Plan

Losing a loved one can bring a wave of emotions, questions and anxiety. After the initial grieving period, understanding and enacting your loved one’s estate plan begins. One matter that is often overlooked is how to deal with debts and mortgages left after death and who is responsible for the payments. Here, estate planning attorney Douglas C. Lauenstein discusses the process of probate, examination of debts and liabilities and communication with financial institutions.

Understanding the Probate Process

Probate is the court-supervised process of transferring the decedant’s assets under an authenticated Last Will and Testament or proceeding under the laws of intestacy if there is no Will. Essentially, probate determines the debts of the individual, the value of their assets and how the assets will be distributed. Debts and mortgages can be accounted for before the probate process begins by creating a list of the individual’s debts, liabilities, bills and financial statements. Bills including monthly mortgages, property taxes, car loans, lines of credit and utility bills are a few examples of what should be included, but making a comprehensive list will streamline the process of handling debts after a loved one has passed.

Examining Debts and Liabilities

Generally, debts belonging to the deceased individual fall into two categories of debt: secured or unsecured. Secured debt refers to debt that is backed by collateral in the event that the debtor cannot pay their debt. Mortgages, for example, are classified as secured debt, meaning that if your loved one dies with mortgage payments remaining, the lender uses that home as collateral to pay off the remaining amount. Unsecured debt, on the other hand, is not backed by collateral, and can be more difficult for you to remediate. For example, an individual’s credit card debt is considered unsecured, and after death, the debt is added to other unsecured debt. In addition to debts, liabilities must be considered when enacting your loved one’s estate plan. Certain liabilities, such as administrative expenses, including storage fees and utility bills, may need to be kept current until the estate closes. Other unsecured debt such as personal loans can wait until the executor knows the extent of all debts and liabilities.

Creditors’ Rights after an Individual’s Death

In order to protect yourself and your family it’s important to collect all notices of debt.  In Maryland creditors typically have six (6) months after death to file a claim against the estate. Some creditors such as the government for taxes and Medicaid for liens have longer periods of time to file claims.  No debt, liability or claim should be paid until you meet with an estate attorney. If the estate debts are not paid in the proper order the Personal Representative could have personal liability. For example, in an insolvent estate the Personal Representative could have personal liability if debts are paid in the wrong order. However, if debts are paid correctly the Personal Representative bears no personal liability.

Speak To Estate Planning Attorney Douglas C. Lauenstein to Learn More

Grieving the loss of a loved one is a grueling process, and being responsible for their finances after they die adds further levels of responsibility and anxiety. Knowing what preliminary steps to take when organizing finances, however, can bring needed relief. For more information on estate planning and organization of debts, contact the elder law attorney Douglas C. Lauenstein today.