Delaying a probate estate

There are TONS of flaws in this logic, so many that I wouldn't even call it logical to start with.

First, I'm very sorry the passing of your friend's wife - my condolences to you, him and the family.

It is highly unlikely that HE is responsible for HER debts, medical or otherwise unless they are joint debts like the mortgage or a credit card. If they're joint debts the terms should continue as they are since they didn't BOTH die.

Life insurance paid directly to a beneficiary passes BEYOND the reach of creditors in most states. So he shouldn't have to use the $1M to pay anything that he doesn't want to keep anyway.

Many individual debts will die with the decedent BUT only if the creditors are properly notified. Open a probate estate starts the time limit for a creditor to file a claim. In Maryland creditors have six months to file such a claim. If they miss that window AFTER the probate notice has been printed in the LOCAL paper they lose the ability to get paid at all. Delaying filing for probate extends this statute for as long as he delays plus whatever the statutory time limit is.

Opening a probate estate and getting a letter of administration, or a letter of testamentary in some jurisdictions. This letter, along with a death certificate can usually be enough to send most creditors packing.

Many people buy Credit Life Insurance when they open a credit card, or other charge account. Notifying the creditors of the death and giving them a letter of administration may allow them to file a claim to have the account paid off with the credit life insurance.

Most banks provide some free life term life insurance to their account holders, in the case of an accidental death. If her death was ruled accidental the letter of administration and a death certificate could get him additional insurance monies that he may not yet know about.

Your friend needs to stop playing probate administrator before it costs him more to be slick than it does to do it right. He needs to talk to someone who does probate administration work and have the case looked over by a competent professional.

Gene E. Utterback, EA, RFC, ABA

And the people said, "Amen!"

I'm currently administering a childhood friend's estate, and it's a mess. He was the last in a line that didn't believe in spending a nickel on lawyers and did everything through joint tenancies and TOD accounts. The only reason he had a will was that after his mother died last year I told him that if he didn't do something before he died the state would figure out what happened to everything. Everything's taking twice as long as it should because things were never tidied up after the earlier deaths. I hadn't been into it for

24 hours before I was cooling my heels at Vital Statistics to get a copy of his father's death certificate from 1999 since the father's name is still all over everything.

Phil Marti

text -

Thanks Gene. For the record, this friend is also my client (I'm a CFP(R) practicioner, by trade). But this time around, I really am only helping him in a "friend capacity". This isn't something I deal with enough to offer him qualified advice.

He's aware that the life insurance passes "beyond the reach of creditors". And you're right, I'm confident that he's not responsible for her debts. But her estate is. And she had other assets (namely her half of the house and a small checking account). Why couldn't the creditors come after those assets?

He's thinking that if he keeps paying the debts himself, he'll keep getting to take advantage of the favorable loan terms. However, if he opens probate and files notice all the creditors going to come scrambling with their hands out. And he'll be forced to pay them off now instead of enjoying 0% interest rates. He can't simply tell them to "bug-off" because there are other probate assets that could be attached.

In short, he sees it this way: "I'm going to end up paying them either way. So why not do it on my (favorable) terms". Honestly, unless you're telling me that most of the creditors will just go away even though there are assets, I still don't see why his plan is so bad.

Thanks for the insights.

Gene had good information. However the fact is that, based on what you originally wrote, there really is nothing to probate. If that's the case, there really is little or no reason to file a probate action.

You should check with a local lawyer just to be sure, but my guess is that there is little to worry about with what your friend is trying to do.

Isn't it fraudulent? Has he checked the loan terms and conditions to see if this approach is allowed? I don't think the issue is whether or not to open probate, the issue is whether or not he notifies the bank that its account holder is deceased, versus impersonating that account holder himself. You and he seem to think that only when one opens probate is that step required.

How would the bank distinguish him from someone who is perpetrating identity theft?

Can he "get away with it"? Probably. Is it honest or ethical? Doubtful.

-Mark Bole

I doubt that there would be a provision in loan documents saying that the debtor's death must be reported to the lender. Most commercial mortgages have a claus providing that the lender can call the loan if title of the property is transferred.

And while there is legally a transfer of ownership when one owner dies, there is not an actual transfer until a new deed or equivalent document is recorded.

Banks can and do call loans when one owner transfers the entire title to property to another owner. But I've never heard of one exercising that clause when one of multiple owners dies and no new owner is introduced to take the place of the deceased one.

In fact, lenders generally have the right to approve how their borrowers take title to property. In this case the lender presumably approved joint tenancy. I seriously doubt they could legitimately complain now that the eventuality contemplated by the joint tenancy has occurred.

If someone wants to steal my identity and do nothing with it but pay my debts, I wouldn't have a problem with that.

On 2010/08/13 14:25, Stuart A. Bronstein wrote: [...]

The OP said nothing about a mortgage. What he said was:

The business basis for the ultra-low rate loans was based on the wife's credit attributes and income, not his. I'm not saying that he has a duty to open probate or notify the lenders, but by deliberately impersonating a deceased person for direct personal gain, there is an ethics issue if not a legal one.

-Mark Bole

I took a look at my residential mortgage which says it's the standard FNMA form. (There's a copy in the abstract of title which I really must put in my safe deposit box someday.) It says the bank can call the loan if there's a transfer without their permission, but there's nothing about any required notifications.

Indeed. It's not like it's transferred to someone with a credit history unknown to them.

I know that at my bank, they go throuh the obituaries in the newspaper every day, to identify customers who have died. So it's reasonably likely that sooner or later the bank will send a letter saying we know she's dead. It's anyone's guess what else they'll say. Keep us posted.

R's, John

I'm wondering what time frame the OP is talking about. When do each of the loans come due, and how much is each loan? For one thing, how much savings is he really talking about? I am sure he is not getting much interest in his bank account he would use to pay these things off. Also, how long is "not abnormal" to open probate and how long is "not abnormal" for probate to drag on? Maybe he is kidding himself as to the amount of the savings.

How so? It's slightly dishonest in that it is an "error of omission", I'll grant you that. But as Stuart mentioned, he only wants to pay her debts at the originally agreed to terms. He's not trying to skirt the responsibility (which may not even be his responsibility anyway) or steal money from them. As a matter of fact, if he paid the debts off, the lenders would lose out on that interest income, no matter how small. They may actually prefer he keep servicing the debts. I'm sure creditors cringe when they received probate notices (it can only mean lost interest or total debt forgiveness).

Furthermore, it has never been considered identity theft in any US Court of which I'm aware to pay a spouses debts for them, deceased or otherwise. If you can point to an incident of that being the case, I'll gladly pass it along. I never said he was calling up teh lenders and impersonating her, nor is he continuing to accumulate debt in her name (e.g. using her credit cards).

Mark, I also suggested to my friend check the he check the loan terms. I have not seen them. For discussion's sake, we'll assume he has no obligation to report the death. In addition, I looked at my mortgage and credit card agreements and I could find nothing to that effect.

Bottom line, I'm only defending the position for the sake of thorough analysis (playing "devil's advocate", if you will). My friend brought the situation to me and I, too, originally thought it didn't pass the smell test. But, as a friend, I told him I'd look into it. I actually told him that the small savings wasn't worth the POTENTIAL headaches (namely, if he were to die before probating her estate). After all, we're only talking about small debts and relatively short introductory rates on many of the debts.

thanks all.

Even if there is, the party who signed it is dead.

There's no law against paying someone else's debts on their behalf.

Seth

But he's not paying the debt, he's keeping the loan balance outstanding. And it's not his loan. He is deliberately misleading the bank, doctors, and other creditors to believe the original borrower is the one who they are still doing business with, expressly to enrich himself at their expense. (If he isn't trying to enrich himself, then why do it?)

If he didn't go out of his way to deceive the bank, they would find out in due time about the death of borrower, and could take whatever steps they felt appropriate at that point to protect their rights. He is acting to prevent that from happening.

-Mark Bole

He's not paying it off, but he is making payments according to the terms of the debt.

I did say "someone else's debt".

How? He uses checks with his name on them, right?

They aren't doing business, they're getting paid for work previously done.

Maybe he has a reason to want not to have to pay a lot of cash at once.

In any event, he's paying according to the terms of the contract.

How much more protected can their rights be than by having the debt paid according to its terms?

Seth

I don't know why I didn't think of this before, but I just remembered that he may be costing himself money by not opening probate and notifying the creditors. My experience is limited to two estates in Illinois that I administered. In both cases the account balance was frozen as of the date of death and no further interest was due after that date. In fact, one creditor offered to settle for less than the balance due if we paid it quickly rather than making them wait until probate payout time. Since he plans on ultimately going through probate, he should talk to a probate lawyer sooner than later.

Phil Marti

how would that remove the debt from the decedent's estate?

It doesn't immediately; but in a year, when the last payment is made, the debt is paid off, at which point it no longer exists and whether or not it's part of the decedent's estate doesn't matter.

Seth

The short introductory rates I'm offered on credit cards is generally

0%, for 9-15 months.

In that case, he would save money. But was that creditor a bank or someone private (who would have a different attitude towards time value of money)?

That's seldom a bad idea.

Seth

Boy, I said that wrong. Why would he want to pay off a debt of the estate with non-estate money? That just raises the Estate Tax take.

I get the impression that the estate isn't large enough to pay tax (especially this year). In any case, isn't the value determined at time of death? Paying off debts after that doesn't increase the value. (It might hurt the chance to use the alternative valuation date, or he could consider that since he paid the estate's debts, the estate now owes them to him.)

Seth