When you hear the word probate, you might automatically think of the distribution of assets to heirs and beneficiaries. While this is part of the New York probate process, debts are another part of the process that cannot be overlooked.
If you are appointed to serve as an executor for an estate, one of your responsibilities is settling or resolving the debts of the decedent, or person who passed away, before assets are distributed.
Identifying and valuing all debts
Good estate planning involves making a list of all your debts before you pass away and keeping that list regularly updated. This makes the process much easier for an executor, who must only verify the list is still accurate and update any balances.
You may not have the luxury of having a list waiting for you. As an executor, you must then make your own list of the decedent’s debts. This includes mortgages or other real estate loans, personal loans, credit card debt and any owed taxes.
Once the list is made, divide the debts up into debts that can be paid off with estate assets and debts that cannot. Generally, loans, credit card debt and tax debt are paid off with estate assets, while ongoing debts such as mortgages are not.
As the executor, it is your duty to confirm each debt and validate the amount. You must then select which estate assets can be used to pay the debts.
How debt transfers to beneficiaries
When a beneficiary receives an asset, such as a house, that has a debt attached to it, they may usually choose how to handle the debt. They may opt to keep making payments on it themselves or use other estate assets to pay it off.
It is usually best to start handling debts as soon as possible, even before the probate process begins. This helps the rest of the process run smoother and reduces the chance of conflicts or confusion.
