Estate Settlement Challenges – When Creditors Pursue the Estate
The first sign of financial distress for executors may be a litany of phone calls or threatening letters. Creditors naturally tend to worry when those owing money pass away, since the income stream has stopped and accountability for the debt comes into question. It’s not uncommon in business situations, for example, for demand loans to be called (an immediate demand for repayment) upon the death of an owner or other key person in the company. While this may be the first sign of financial difficulty for the estate, it is by no means a certainty, and executors should consider the position of the lender and act accordingly.
Creditors will pursue the estate for payment of outstanding debts for one of three reasons:
- They haven’t received payments in a timely manner.
- They haven’t been fully paid.
- They have incorrect information.
When dealing with creditors it is wise to speak with them promptly and courteously, giving them the necessary information without breaching any privacy issues. Determine what the immediate issue is and what is required to satisfy them ultimately. Be clear about what actions will be taken by both parties and request a record of the conversation be made in the account’s file. A similar note should be made in the executor’s file, including the date and name of the creditor representative.
During the estate settlement period, bills of the decedent are expected to be paid from the estate account, so payments should not be in arrears. A notification from a creditor may signal a previously unknown debt. It’s important to determine if this is the case, and how it was missed, as there may be others. Failure to account for all debts prior to making distributions to heirs could be highly problematic for the executor later on. The alleged debt should be verified by the executor before any repayments are made or validated by the creditor if the executor is unable to make the verification. Failure to be diligent could result in wrongful payment for which the executor may become responsible if the heirs take legal action due to diminished benefits of the estate. Creditors have been known to seek repayment simply based on erroneous information.
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