Debts owed to an estate...

[Texas Proud]

Well... I guess some of the posts just rubbed you the wrong way...

I gave two methods that I have seen used... but a long time ago... (I used to do estate taxes... again, not a lawyer... but not someone making stuff up)...

For some reason you keep coming back to the 'must collect debt' like she HAS to get the money OR write it off... nevermind... not worth the trouble...

 

[Martha]

Darn, I say I'm disgusted with the thread and then you come along with something germane and knowledgeable.

So I understand your response, and from a layman's viewpoint I think it makes perfect sense. Just deduct from her share whatever it is that she owes. It's fair and should make everyone happy. However, I keep coming back to the point that says the executor has a duty to go after all debts owed, and has to get the court's authority to write off any bad debt.

So, if she has to go after all the debts including this one, and her alternatives on any unpaid debts is to sue or get it declared unpayable and removed from the estate's inventory, how does she legally go about distributing the remainder according to the scheme of "here's your share minus what you owed"? I don't think my SiL who owes the debt would balk and demand her "full" share, but people do weird things when it comes to money.

Edit to reply to Martha's edit regarding offset provision: I haven't found it. Doesn't mean it's not there. I did find an provision for exchanging things of value but that read more along the lines of like value.

I think you might be getting to twisted up in the details of the probate code and collection/forgiveness of debts. My guess, and it is only a guess as I don't know Texas probate, is that the accounting filed with the court will show the offset of the debt against the distribution and it won't be a big deal. No debt is forgiven and none needs to be collected. (The inventory of estate assets, or whatever they call it in Texas, should show the claim against the sister.)

Edit: The uniform probate code specifically allows for offset of the heirs share against the present value of the debt. I don't think that Texas has adopted the uniform probate code but it might have a similar practice.

 

[Martha]

Here is the provision of the Uniform Probate Code:
Section 3‑903. Right of Retainer.

The amount of a non‑contingent indebtedness of a successor to the estate if due, or its present value if not due, shall be offset against the successor's interest; but the successor has the benefit of any defense which would be available to him in a direct proceeding for recovery of the debt.


The issue is whether Texas has something similar, or if not an actual statute, whether the practice is similar.

 

[traineeinvestor]

In the jurisdictions I am familiar with:

1. the executor has a duty to collect all the assets of the estate - this will include money owed unless there is an explicit forgiveness arrangement recorded somewhere

2. an executor who fails to do this (or at least to try to do it) risks exposing him/herself to liability (i) by under reporting the value of the estate for tax purposes and (ii) reducing the value of the (other) beneficiaries interests in the estate

Most professional (as opposed to family/friend) executors will go to court and seek directions to avoid getting sued after the event. S/he will have to present the full facts to the court when doing so.

Without wishing to add to what appears to be an already difficult situation, unless it was the deceased's intention that the debt (inculding interest) be forgiven before the value of the estate was calculated, the debt should form part of the estate and either be collected for distribution or set off against the debtor's liability to the estate. Anything else represents a transfer of wealth to the debtor from the other beneficiaries without their consent.

That said, I would place preserving family relationships which matter to me ahead of the financial issues. I would probably suggest settling the estate on the agreed basis that the interest will be forgiven and the principal will be offset against the debtor's share of the estate.

 

[Walt34]

On the surface it seems simple to me. The executor, whose primary fiduciary responsibilities are to the estate, simply subtracts the amount of the debt owed to the estate from the amount that the debtor would otherwise have received. That would, I think, meet the legal intent of collecting on the debt.

That assumes that the amount that the debtor would have received exceeds the amount of the debt, which seems to be the case here.

It seems that the situation is made more complicated than necessary by misinformation, confusion, and the personalities involved. This is where the lawyer is worth his/her money.

 

[Leonidas]

Here is the provision of the Uniform Probate Code:
Section 3‑903. Right of Retainer.

The amount of a non‑contingent indebtedness of a successor to the estate if due, or its present value if not due, shall be offset against the successor's interest; but the successor has the benefit of any defense which would be available to him in a direct proceeding for recovery of the debt.


The issue is whether Texas has something similar, or if not an actual statute, whether the practice is similar.

I searched the code and found there is no codified Right of Retainer in Texas. It may exist in practice, as the code says that the executor has to get court approval for bad debts not collected and any "legal offsets" that were made. No mention is made anywhere of what a "legal" offset is, so I can only assume it is either common law or mingled in some other code, most likely in the definitions of the business code.

I learned a lot about probate in Texas and the many differences it has to other state's probate system. For example, I wonder if any other state devotes an entire chapter to the inheritance rights for an estate's cattle or oil rights.

Thanks to Martha et al for the assist.

 

[bmnk]

We're dealing with the exact same problem here in NY and I would love to know what you did to resolve it. Hoping to hear from you...

 

[Leonidas]

We're dealing with the exact same problem here in NY and I would love to know what you did to resolve it. Hoping to hear from you...

For my personal sanity, and the sake of marital harmony, I eventually washed my hands of the deal. Not that I didn't support my wife emotionally, but whenever the legality of all this came up I gave my standard smartass answer; "Maybe you should talk to an expert on this subject and get some competent advice."

Ultimately they allowed SIL an offset of her share equal to the remaining amount owed, and forgave the interest. I have no idea how this was accounted for in any report to the court, as the executrix continued to be a poor communicator right up the the bitter end (which was about two months ago). The majority of the heirs were by then desperate to get the remainder of the money in the estate and signed off on a waiver to forgo a final accounting.

As somebody previously wrote in this thread, there are no "estate police", and absent anyone raising a formal complaint the issue did not extend beyond the family's effort to work it out.

DW wanted at least an informal accounting of where all the money went, but by then one BiL was desperate for the money, the SiL who owed the debt was desperate for the money (but she has a nice Corvette), and the others didn't care one way or the other. So the Princess caved and signed the waiver just to get the beggars off her back.

Other than not marrying into a family of crazy people with no clue how to manage money, my best advice would be to get the heirs to communicate with each other. It is especially important for the executor to be as open and up front as possible about everything. If we could just follow the wisdom of Rodney King and "all get along", this sort of thing becomes a non-issue.

Or so I imagine it works out that way in sane families.

 

[bmnk]

Other than not marrying into a family of crazy people with no clue how to manage money, my best advice would be to get the heirs to communicate with each other. It is especially important for the executor to be as open and up front as possible about everything.
Or so I imagine it works out that way in sane families.

Thanks so much for the quick reply! Well, as far as not marrying into a family of crazy people...too late! And getting the heirs to communicate with each other ...again, too late. My husband has been very transparent and upfront with all involved, but only one sister seems to appreciate this. He does get a lot of stories of family problems from others...are there any sane families? Thanks again.

 

[Nova]

It's odd how otherwise sane people lose all logic when it comes to death/funerals/wills. All too often family ties are so strained that permanent damage is done to relationships.

 

[rescueme]

...are there any sane families?

Add the prefix "in" to the word "sane", and I think you would cover most family situations (at least the one's I've had) ...

 

[67walkon]

Wish I had seen this thread before! We had something very similar, but even more tragic happen. What you guys worked out was very reasonable.

My wife's family had some business assets that were pretty valuable, in the $4-5 mill range. FIL died quite some time ago. For business reasons related to franchises, the had to gift a majority of the business stock to the BIL. BIL and my wife were the only children.

Once FIL died, BIL went wild. MIL couldn't and wouldn't control him. He was in and out of rehab and spent several months in jail for DUI probation violation. He spent business money like a drunken sailor. MIL for serveral years was getting a K-1 showing $100K+ in income that BIL was putting in his pocket while MIL paid the taxes on it. She didn't understand.

MIL died. BIL was off on a bender/drug binge. We discovered, among other things, that MIL had paid a $100,000+ Amex credit card bill one month, trying to hide his conduct from everyone. Poor MIL had around $200,000, 25% of the stock in a business that was about to go under and some real estate.

We tracked BIL down and got him sobered up for the funeral. He had been estranged from his wife for about 7 or 8 years and a divorce action was pending. Before he could get it done, he died at a very young age from either alcohol or drugs or the combination. He left behind a very pissed off widow who pretty much hated my wife and who had hated the MIL when she was alive. At the time, the BIL owed the business more than $1,000,000, not counting what wasn't even recorded, and owed the MIL another $600,000 or so that we could figure out. And, of course, his pissed off widow didn't want to pay it.

The short version is that there was a lawsuit. MIL had no real estate plan. We had to pay estate taxes. The pissed off widow did buy my wife out of the 25% of the stock, payable over time, and it is well collateralized. It was cheaper for the widow to do that than the deal with her husband's estate having to pay back the $1mill to the business.

It turned out okay, but the original poster who worked out a deal without a lawsuit made a smart move. The former SIL hasn't spoken to my wife in 4 years. The business had a pretty decent manager who has stayed on and kept it going, but the debt on it is huge. We're out of it.

The moral of the story is have an estate plan and talk to your kids about it. If you have parents, talk to them--easier said than done because many of them won't do it. Final moral is that lawsuits usually only really benefit the lawyers; if you can work something out that isn't quite fair to you but maintains some civility, you are better off.

 

[kcowan]

My former BIL ripped off his aunt to the tune of $1.8 million. The aunt was childless so the aunt's sister and his sister (my Ex) were robbed of an inheritance. He was a bank manager and we stumbled on the aunt's net worth from a bank statement stashed behind some tools in the basement.

 

[brett]

I was an executor. I probated the will, paid all taxes and probate fees, etc, and then offset the debt against the share of inheritance. No issues whatsoever. It was straightforward with no objection by the debtor.

 

[Avalon05]

Debts owed to an estate

My brother borrowed money from my Mother a few years ago. He started paying the money back and died before he could pay it in full. He has 2 living children. My mother wants the money he owes reduced from the amount his 2 children would get. There are still 4 living siblings. She wants to do a codicil to her original will. How do we word this?

 

[rodi]

My brother borrowed money from my Mother a few years ago. He started paying the money back and died before he could pay it in full. He has 2 living children. My mother wants the money he owes reduced from the amount his 2 children would get. There are still 4 living siblings. She wants to do a codicil to her original will. How do we word this?

I don't think your mother can change your brother's will after his death. Or are you suggesting that HER will be changed to reduce inheritance for these two grandchildren? No reason she can't change her will.

 

[Avalon05]

It is my Mother's will that should be changed. I know she can change her will with a codicil I am looking for wording help.

 

[ERD50]

I had a longer response typed, then a slip of the hand deleted it before I had done a copy/paste. Arghhh!

It is my Mother's will that should be changed. I know she can change her will with a codicil I am looking for wording help.

See the attorney who did the original will, or another if she wasn't satisfied with the first. Or get the NOLO book on making wills if you really want to DIY (IIRC, the book gives a pretty good guide as to when DIY is not a good idea).

This is the reason why all our our assets are in a revocable living trust, probate is a pain.

I don't see any difference regarding the Original Post. I could have a revocable trust, make a loan to an individual from the assets in the trust, and I'd be in the exact same situation.

-ERD50

 

[Taxman59]

The executor needs to follow the terms of the will. That being said, the will likely does not require 15% of each asset, but 15% of the value. The value of the note is the principal plus unpaid interest reduced by the costs of collection. Since the executor has the cash, the note is distributed to the debtor plus cash to make up the difference. This happened with my grandfather and an uncle. He wasn't happy, but could do nothing about it.

Sent from my SCH-I545 using Early Retirement Forum mobile app

 

[Meadbh]

For my personal sanity, and the sake of marital harmony, I eventually washed my hands of the deal. Not that I didn't support my wife emotionally, but whenever the legality of all this came up I gave my standard smartass answer; "Maybe you should talk to an expert on this subject and get some competent advice."

Ultimately they allowed SIL an offset of her share equal to the remaining amount owed, and forgave the interest. I have no idea how this was accounted for in any report to the court, as the executrix continued to be a poor communicator right up the the bitter end (which was about two months ago). The majority of the heirs were by then desperate to get the remainder of the money in the estate and signed off on a waiver to forgo a final accounting.

As somebody previously wrote in this thread, there are no "estate police", and absent anyone raising a formal complaint the issue did not extend beyond the family's effort to work it out.

DW wanted at least an informal accounting of where all the money went, but by then one BiL was desperate for the money, the SiL who owed the debt was desperate for the money (but she has a nice Corvette), and the others didn't care one way or the other. So the Princess caved and signed the waiver just to get the beggars off her back.

Other than not marrying into a family of crazy people with no clue how to manage money, my best advice would be to get the heirs to communicate with each other. It is especially important for the executor to be as open and up front as possible about everything. If we could just follow the wisdom of Rodney King and "all get along", this sort of thing becomes a non-issue.

Or so I imagine it works out that way in sane families.

The OP last posted in this thread in 2011. It would be interesting to know how it all turned out.

 

[Texas Proud]

My brother borrowed money from my Mother a few years ago. He started paying the money back and died before he could pay it in full. He has 2 living children. My mother wants the money he owes reduced from the amount his 2 children would get. There are still 4 living siblings. She wants to do a codicil to her original will. How do we word this?

Very little info, and from a long ago thread...


Whoever is probating your brothers will should pay off his debts, including to your mom... if he has not assets that can be touched, then she does not get anything....

That is a cost of lending money... I would not take it out on the grand kids... it was not their doing....

That being said, is she leaving anything to grand kids anyhow? My mom has a few savings bonds to go to grand kids and they get a bit of money from an insurance policy, but all assets go to her kids... if one kids dies before she does then their kids are out of luck....

 

[2017ish]

Very little info, and from a long ago thread...


...

That being said, is she leaving anything to grand kids anyhow? My mom has a few savings bonds to go to grand kids and they get a bit of money from an insurance policy, but all assets go to her kids... if one kids dies before she does then their kids are out of luck....

I want to say that this is unusual drafting.... But since I don't do estate planning work, better to say that I've seen more than a few wills and trusts discussed in published cases (as well as in a couple of our cases and our family's own documents...) that provide for the grandchildren to collect their deceased parent's share and split it between them equally.

As always, check the documents.

 

[Brat]

The trust grantor can modify the trust to reflect the unpaid debt, deducting the debt from what the grandchildren would otherwise receive. If the estate will pass via a will prepare a codicil to the will.

Frankly these changes should be made under the advice of an attorney so that there is no question, legally.

 

[kcowan]

It is my Mother's will that should be changed. I know she can change her will with a codicil I am looking for wording help.

Something like:
"The remainder of the estate will be divided among my grandchildren as follows:
1. To the children of my son, their half share is to be reduced by $xxx,xxx being the amount of an unpaid loan by said son and the balance divided equally between them.
2. The remaining grandchildren will receive the unreduced amount, namely a one quarter share each of the total."

Lawyers will add many more words so there can be no room for interpretation. But the executor of the son would handle paying off any balance if the loan were documented.

 

[Texas Proud]

I want to say that this is unusual drafting.... But since I don't do estate planning work, better to say that I've seen more than a few wills and trusts discussed in published cases (as well as in a couple of our cases and our family's own documents...) that provide for the grandchildren to collect their deceased parent's share and split it between them equally.

As always, check the documents.

Yep, but it was what my mom wanted... Both the attorney and I mentioned the option you say, but she figures that she left the grand kids something and it is their parents job to make sure they have enough... I will be the executor as I used to do estate taxes when I was young...