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Collecting a Debt in a Minnesota Probate If someone passes away while owing others money, it’s an unfortunate circumstance of everyone involved. The people owed the money may fear that they won’t see the return of the money they loaned out.

The loved ones of the deceased will be grieving and the last thing they want to worry about is a bill. Though it’s a difficult situation, the reality is that people pass away every day while owing money to others and the law has thankfully adopted a process for dealing with such claims.

Will you ever get the money back?

Though it would be nice to give a resounding “Yes!”, the honest answer is more complicated. Though you might get every dime that you’re owed back, you might also get nothing. The reality is that it depends entirely on the financial situation of the person who passed away. If he or she owed lots of people lots of money and had little in the way of assets, it is possible you will not ever get the money you are owed back. If, on the other hand, the person owned property, like a house and cars, and had a small amount of debt, the estate of the person will likely have the necessary funds to repay the money that is owed.

Are family members responsible for a loved one’s debts?

Absolutely not. This is an important point that can cause some confusion. While you may be owed the money by the estate of the deceased, you are not owed the money by his or her relatives. Unless those relatives were signatories to the loan, they have no legal obligation to use their money to repay any debts owed by the estate of a loved one. The money is owed exclusively by the estate and if there isn’t enough money in the estate to go around, no other parties, including the executor, will be liable for paying the remainder.

Who has the responsibility of paying money owed?

Though the estate owed the money, the estate’s actions will need to be carried out by a person. So who is the person that pays the bills? Debts of an estate are managed by the person designated in the deceased’s will. This person, the executor of the estate, is often a spouse, a child or a close family friend. This person is tasked with performing an accounting of the estate, to see how much is owed and then distributing assets to pay any debts. Anything that remains, will be given to the heirs.

How much time do you have to collect money owed?

In Minnesota, the answer is not very long. Section 524.3-803 of Minnesota Statutes discusses the time allotted for creditors to file notice of their claims against an estate. The law says that in cases where proper notice to creditors is published, the creditors have no more than four months after the date of publication to bring their claims. In cases where notice was not filed, creditors have at most one year after the decedent’s death to raise their claims. The goal is to wrap the process up quickly, meaning if you are owed money you need to move fast to stake your claim.

Collecting a Debt in a Minnesota Probate

An experienced Minnesota estate-planning lawyer can help walk you through the probate process, answering questions along the way. For more information on estate planning in Minnesota, along with a variety of other topics, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398.

Non-Probate Assets in Minnesota

Last week we discussed what happens when an estate runs out of money. When this happens, an estate is seen as insolvent, meaning the assets are not sufficient to cover the liabilities owed. In these cases, money is distributed according to a pre-established hierarchy and when it runs out, it’s gone. But what happens if there are assets beyond those in the estate? Can they be used to pay off the estate’s debts? To learn more keep reading.

First, why would there ever be assets that are not part of the estate? The reason is because some assets are seen as non-probate assets and pass outside of the probate system. This happens most often with assets that have what are known as designated beneficiaries.

Designated Beneficiary Law

What is a designated beneficiary? A designated beneficiary is someone who was named as the person to whom an asset will pass should he or she survive the decedent. When you list someone’s name as beneficiary on an IRA, 401(k), life insurance policy or bank account, this makes them a designated beneficiary. In these cases, and those involving pay-on-death or rights of survivorship accounts, the assets pass directly to the named beneficiary. This happens entirely outside of the probate process and results from a contract between the decedent and the financial institution. Because no probate court is involved, these are referred to as non-probate assets.

Insolvent Estates

So what happens if an estate is upside down, but there are non-probate assets with money that could be used to cover some of the debts? Are the non-probate assets up for grabs? Surprisingly, the answer is not always so clear. Recently, Texas passed a new law that says that assets from multi-party accounts that pass outside of the probate process are liable for the debts of an estate. The problem is that the Texas law doesn’t do a very good job of explaining how this should work in practice. The issue is that though these funds may be used to pay debts of an estate, the executors may not have any access to the funds as they were lawfully distributed by the financial institutions directly to the beneficiary. Unless the executor acts quickly and notifies the financial institution that funds are in dispute, it may be too late as they money could already be spent. Should that happen, the Texas law says nothing about how the executor should go about recovering money from the rightful beneficiary.

In Arizona, the law is similar. The legislature there said that non-probate assets can be used to pay a decedent’s debts, but only in cases where the estate’s assets are insufficient to cover its liabilities. In those cases, the beneficiary of the non-probate asset would be held legally responsible for satisfying debts up to the value of the money received. That means if a beneficiary received a bank account worth $10,000, he or she could be on the hook to pay up to $10,000 in debts of the decedent’s estate.

Creditor Claims (Debts of the Deceased)

In other states, non-probate assets are seen as not being part of the estate and thus cannot be claimed by creditors, even if the estate is insolvent. According to the Minnesota Department of Revenue, assets that are payable upon death are not part of the state’s probate process. As a result, the DoR goes on to say that named survivors inherit these non-probate assets, which are not applied to the deceased person’s debts. Examples given of such non-probate assets including things like property with a right of survivorship, insurance proceeds, annuities, pensions, retirement accounts and accounts that are payable upon death.

Minnesota Probate Lawyers

An experienced Minnesota probate lawyer can help walk you through the probate process, answering questions along the way. For more information on estate planning in Minnesota, along with a variety of other topics, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398.

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Collecting a Debt in a Minnesota Probate | What Happens If Someone Who Owes You Money Passes Away?