Delaying a probate estate

[kastnna]

Hi all,

Got a quirky situation...

A friend's wife died recently leaving behind little more than her 1/2
ownership interest in their house (JTWROS), a few personal items (e.g.
jewelry), various debts, and a $1M life insurance policy. Her husband
is the sole beneficiary of everything. He was also the named
beneficiary of the insurance policy, so that claim has already been
filed and paid to him directly.

Thus far, the wife has been deceased for three months and the husband
still hasn't opened probate. As a matter of fact, he doesn't intend to
until he's forced to. You see, his wife had a number of medical bills,
credit cards, short-term bank loans, etc... that all have extremely
lucrative terms (low monthly payments and very low rates).

My friend reasons that if he doesn't open probate, he can continue to
dutifully services those debts at low interest rates. However, if he
opens probate, he'll be forced to notify her creditors and pay-off all
her debts sooner rather than later. In other words, opening probate
will force him to accelerate the payment of favorable loans in
exchange for very little in return. The way he sees it, he's got
nothing to lose by keeping probate closed. Obviously, he intends to
eventually open probate once those loans reach maturity and/or once
the introductory rates expire. But that will likely be a year from
now.

Anybody see any flaws in his logic?

 

[Gene E. Utterback, EA, RFC, ABA]

Hi all,

Got a quirky situation...

A friend's wife died recently leaving behind little more than her 1/2
ownership interest in their house (JTWROS), a few personal items (e.g.
jewelry), various debts, and a $1M life insurance policy. Her husband
is the sole beneficiary of everything. He was also the named
beneficiary of the insurance policy, so that claim has already been
filed and paid to him directly.

Thus far, the wife has been deceased for three months and the husband
still hasn't opened probate. As a matter of fact, he doesn't intend to
until he's forced to. You see, his wife had a number of medical bills,
credit cards, short-term bank loans, etc... that all have extremely
lucrative terms (low monthly payments and very low rates).

My friend reasons that if he doesn't open probate, he can continue to
dutifully services those debts at low interest rates. However, if he
opens probate, he'll be forced to notify her creditors and pay-off all
her debts sooner rather than later. In other words, opening probate
will force him to accelerate the payment of favorable loans in
exchange for very little in return. The way he sees it, he's got
nothing to lose by keeping probate closed. Obviously, he intends to
eventually open probate once those loans reach maturity and/or once
the introductory rates expire. But that will likely be a year from
now.

Anybody see any flaws in his logic?

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

 

[Phil Marti]

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.

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

 

[kastnna]

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

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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.

 

[Stuart A. Bronstein]

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.

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.

 

[Mark Bole]

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.

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

 

[Stuart A. Bronstein]

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.

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.

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

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

 

[Mark Bole]

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

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.

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

his wife had a number of medical bills,
credit cards, short-term bank loans, etc... that all have extremely
lucrative terms (low monthly payments and very low rates)

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

 

[John Levine]

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.

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.

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.

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

 

[Wallace]

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

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.

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

his wife had a number of medical bills,
credit cards, short-term bank loans, etc... that all have extremely
lucrative terms (low monthly payments and very low rates)

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.

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.

 

[kastnna]

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

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.

 

[Seth]

I doubt that there would be a provision in loan documents saying that
the debtor's death must be reported to the lender.

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

 

[Mark Bole]

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

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

 

[Seth]

But he's not paying the debt, he's keeping the loan balance outstanding.

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

And it's not his loan.

I did say "someone else's debt".

He is deliberately misleading the bank, doctors, and other
creditors

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

to believe the original borrower is the one
who they are still doing business with,

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

expressly to enrich himself at
their expense. (If he isn't trying to enrich himself, then why do it?)

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.

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.

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

Seth

 

[Phil Marti]

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.

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

 

[Wallace]

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?

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

 

[Seth]

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

 

[Seth]

On Aug 14, 12:38 pm, kastnna wrote:

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.

The short introductory rates I'm offered on credit cards is generally
0%, for 9-15 months.

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.

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)?

Since he plans on ultimately going through
probate, he should talk to a probate lawyer sooner than later.

That's seldom a bad idea.

Seth

 

[Wallace]

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.

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.

 

[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