Explained: Debt and The Probate Process
When a loved one dies without having designated an executor in a will, the state probate court (referred to as the surrogate’s court in a few states), appoints an administrator who becomes legally responsible to follow the court’s protocols for closing out the financial affairs of the deceased. Accordingly, debts must be resolved before any remaining assets can be distributed to heirs, using the state laws of intestacy. Read on for an expert overview of how debts are resolved during probate, the role of administrators, and an explanation of why estate bonds, sometimes called administrator or probate bonds, are typically required.
Administering An Estate: Debt Before Distribution
For many families, probate represents a first foray into the court system, and it can be confusing, especially during a time of grief. If a loved one made a will, chances are good that the process will be eased, especially if the executor designated in the will had a chance to prepare and organize. Absent that, the probate court will designate a responsible adult, often a close relation or friend (who may also be an heir) to carry out the process of paying off the debts of the deceased, prior to distributing remaining assets. This designated representative is known as an administrator in most states.
The beneficiaries of an estate are not generally responsible for debt upon the death of a relation, though the administrator must abide by the protocols for addressing the claims of creditors before any assets can be distributed. That’s why, according to attorneys at Frank & Kraft, once appointed, an administrator can anticipate that it will take at least six months to settle the affairs of the estate: “Only after the time to file claims has expired and claims have been reviewed,” can the administrator begin the distribution of assets. As attorneys at the law practice of Robinson & Henry further explain,the debts of the deceased fall into two categories: known and unknown, and, as illustrated in this example from Colorado, careful attention to both types of creditor claims against the estate can curtail excessive probate delays:
A decision must be made as to whether to provide direct notice to known creditors of the decedent of their passing. Known or reasonably known creditors if not given direct notice of the decedent’s passing have one year from the date of death to file a claim. Those known creditors given direct notice have either 60 days from the written notice date or 4 months from the date of the first published notice date to unknown creditors to file a claim. So, giving direct notice can shorten the time a known creditor has to file a claim. If one year from the date of death has already passed when a probate is initiated, then no notice, published or direct, is required in most instances.
Attorneys at Ricaforte Law point out that in the event someone dies without assets, “creditors are generally not able to collect on the debts,” but advise estate administrators to help safeguard assets by proactively taking these three steps:
- Addressing jointly-held debt. Beneficiaries usually cannot inherit a loved one’s debt, but there is an exception. If someone else’s name is on the debt—such as a joint credit card or a loan obtained with a co-signer—the surviving account holder could be left to pay the remaining balance on the account.
- Stopping family members from accidentally committing fraud. Credit card companies allow an authorized user to charge items without sharing responsibility for the debt. However, if an authorized user continues to use the card after the main cardholder passes away, they could be committing fraud.
- Waiting to distribute assets to heirs. Family members may put pressure on you to distribute heirlooms, promised sums of money, and other assets from the estate as soon as possible. Unfortunately, any distributions you make before the estate has settled its debts can cause problems—including potential litigation among family members or putting heirs on the hook for the debt.
Before the court officially closes an estate, an administrator must report the final accounting to the court. When there is no will or other estate plan in place, the assets of the deceased, such as personal property, bank accounts, and real estate, are distributed in accordance with intestate succession laws.
Probate and Estate Bonds Demystified
A court-appointed administrator has legal responsibilities. In fact, generally, an administrator is considered a fiduciary, meaning that they are legally obligated to take better care of assets intended for beneficiaries (or owed to creditors) than they do of even their own money. To ensure these duties are handled honestly and accurately, courts often require administrators to obtain a type of estate bond, which may be referred to specifically as a probate or administrator bond.
Despite the specific term used (i.e. probate, administrator, fiduciary), all estate bonds serve the same essential purpose: the bond acts as a financial guarantee to heirs and creditors until affairs are settled in accordance with court protocols. In this way, estate bonds provide peace of mind to the court, heirs, and creditors until the affairs of the deceased are properly closed out. The amount of an estate bond, and the specific bond terms are set by the courts—typically the judge or a court clerk. This determination is based on the type of case, the total value of the assets being probated, and the specific legal protocols of that jurisdiction.
When any type of estate bond is required, it is essential to meet the deadlines and specific requirements of the probate court. As a U.S. Treasury listed and direct bond writer, licensed in every state, Colonial Surety Company ensures that every estate bond issued meets the exact, state-specific requirements of probate courts, and guarantees that no middle-player fees are added to bond premiums.
With a digital estate bond service, Colonial Surety Company makes it efficient and fast for estate administrators in every state to secure their required bonds by following these four easy steps:
- Simply select the specific bond you need from our extensive online bond library.
- Receive an instant quote.
- Complete the brief application and payment.
- Download or print your court-ready bond.
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