If a loved one or relative wasn’t entirely forthcoming about their debts, working through what is and isn’t owed to creditors after their death can be a time-consuming and challenging process.
Different states have different laws, but in most cases, if there is a Will, it must first be filed with the probate court to clear any unpaid debts, and in Minnesota, that process is the same.
Owing Debt in Minnesota Probate
If the estate has significant value and/or resources, creditors may file or present their claims for outstanding debts such as mortgages or unpaid loans. The estate administrator or personal representative has to pay all valid debts and must use estate resources to do so. In most cases, only those that have been legally appointed by the probate court to deal with the estate can decide how the estate’s assets can resolve such debts. As you might expect, these debts need to be cleared before any inheritances can be issued.
If an estate is open with the court, the personal representative or administrator must publish notice to creditors. Creditors have four months to file a claim, and if they don’t, the debt is forever barred (meaning the estate is no longer on the hook for it).
In the circumstance of “insolvent” estates (those with insufficient non-exempt resources to pay off debts), creditors may come after other family members to repay those debts if debts were joint between the deceased and a living spouse or another living relative. However, naming beneficiaries on valuable financial assets such as life insurance policies, 401(k)s, and IRAs almost certainly leads to a successful succession and the bypassing of probate for these types of assets.
Unpaid Debts Without A Will in Minnesota
Minnesota can direct your estate’s division if there isn’t a legal Will to present to the probate court. The state will follow a relatively standard next of kin succession line to settle assets.
If a personal representative or administrator was never designated due to the lack of a Will, the court will appoint one, usually an attorney if a family member is unavailable.
Creditors can still come after unpaid debts, and the process would be similar to the case where there is a Will, based on the type of debt involved. It’s important to note that federal student loans and certain parent-first student loans are forgiven if the student or the parent who took out the loan dies. Private student loans are subject to rules similar to other private, bank-issued loans.
Generally speaking, everyone is protected by the federal Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices to try to collect a debt. At that link, the Federal Trade Commission’s Consumer Division outlines a number of other rules debt collectors must abide by when pursuing balances after the account owner’s death.
Of course, the easiest way to avoid a number of these headaches is by creating an appropriate estate plan ahead of time. Dealing with these issues after a loved one’s death can be a painful and challenging process. To get the estate planning process started today, call Waldron Law Offices, Ltd. at (952) 471-0940 to learn more about how we’ve helped families prepare their estates.