Tag Archives: probate attorney

Credit card debt after death – what you need to know

k15365456It’s often incredibly difficult to cope with the death of a loved one.  A creditor knocking on your door makes it even more difficult.

Can a creditor collect a credit card debt owed by your deceased parent or spouse?

There is not one simple answer to this important question.  There are many factors to be considered.  Here are 10 questions and answers to help you understand what may happen.

  1.  Are family, friends or heirs responsible for your debts?
    When you take out a credit card in your name, you’re agreeing to repay whatever you borrow.  That obligation usually doesn’t extend to anyone else.  The only exception is if you had a joint account holder.  That person would be responsible for all debt incurred through use of that credit card, even if the debt was not run up by  that joint account holder.
  2. Direct creditors to the executor.
    When you die, your obligations will transfer from you to your estate.  The executor of your estate will be responsible for handling all of your estate’s financial issues, including your debts.  If a family member gets a call about a debt and isn’t the executor, he or she should direct the caller to the executor and tell that person not to call again.
  1. Notify creditors and the credit bureaus.
    The executor should notify any known creditors as soon as possible about the death.  They should also notify the three main credit reporting agencies – Experian, Equifax and TransUnion – and request that the accounts should be flagged “Deceased: Do not issue credit”.  This will help prevent a very common problem – identity theft of the deceased.

The executor should also request a copy of the deceased’s credit report.  This will help him to identify any outstanding debts.

  1. Find out who’s responsible.
    As previously mentioned, people who request credit together are equally responsible for the total debt.  The same is true with a co-signer of a loan, who by cosigning is guaranteeing the debt of the borrower.

    Authorized signers on credit card accounts, however, aren’t liable.  They didn’t originally apply for the credit; they were just allowed to ”piggyback” on the account of the person who did.

  2. Stop using credit card accounts.
    If you’re an authorized user on a credit card account, you shouldn’t use the card after the main cardholder dies.  Because you’re not liable for the debt, this could be considered fraud.

    A surviving spouse can request a card in his or her own name.  However, it will most likely be a new card application, based on the survivor’s credit history, income, etc.

  3. Don’t split up all of the belongings yet.
    Nothing should be distributed until after the estate has settled its debts.  If there’s not enough money in the estate to pay those debts and belonging have been distributed, the heirs could become responsible for those debts.
  1. Ask creditors for help.
    If a surviving spouse is a joint account holder and is having trouble paying the bills, he or she may be able to work something out with the creditors.  He or she may be given time to get organized or to come up with the needed money.
  1. Community property states are different.
    If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and, if you choose it, Alaska) one spouse can be liable for the debts of the other, even if they didn’t agree to them or even know about them.  In these states, the surviving spouse will most likely be responsible for any credit card debts.
  2. If an estate can’t pay, the lenders lose.
    If the estate has more debts than assets to pay them, creditors may be forced to write off those debts.
  3. When in doubt, contact an attorney.
    Figuring out what to do about estate debts can be complicated so you might want to contact a probate attorney for help.

    For more information about identity theft of the deceased or how to settle an estate, check out our website, www.diesmart.com
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Probate Avoidance

HOW CAN YOU STAY OUT OF COURT WHEN SOMEONE DIES?

One of the most important things to understand about estate planning is the importance of property title.  The way property is titled impacts what type of paperwork and procedure is required when someone dies, and if someone becomes incapacitated.

People may think a will avoids probate. In fact, a will has nothing to do with whether or not probate is required.

Probate is required when you own property as an individual, or when the term “estate” is used to identify an owner or a beneficiary on title and other ownership documents.  The way to avoid probate is make sure that property you own is not titled in these manners.

Q. What are probate assets?

A. The probate property page explains how property title determines whether the asset is considered a probate asset, i.e., property titled only in the name of the decedent, or when the “estate” is listed as a beneficiary or becomes the default beneficiary.

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Q. What are non probate assets?

A. The probate property page explains how property title determines whether the asset is considered a non probate asset. Non probate assets are assets whose title is transferred to the beneficiary by operation of law or by contract.

Individuals who want to avoid probate need to make sure their property is titled so title transfers by operation of law, i.e., joint tenants with rights of survivorship, or by contract law, i.e., payable on death beneficiary designations, and living trusts.

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Q. What are the pros and cons of using joint tenancy with rights of survivorship as a way to avoid probate?

A.Married couples routinely own property titled as Joint Tenants with Right of Survivorship.  When the first spouse dies, the surviving spouse automatically inherits the property and eliminates the need for probate..

Because the surviving joint tenant wants to avoid probate when they die, the surviving spouse often considers adding one or more of their children to the deed as a method of avoiding probate.  Although the use of joint tenants with rights of survivorship can avoid probate, consider these facts before adding someone as a joint tenant.

  • The property is subject to creditor claims from both joint tenants, regardless of who originally owned the asset.
  • There is no step up in the tax basis of the property when you die.  When someone receives a gift, they also receive the cost basis the person giving the gift had.
  • You are giving away the opportunity to do tax planning involving that property after you have made someone a joint tenant.
  • The transfer into joint tenancy may be considered a taxable gift.
  • In some states, the person making the gift may lose homestead or other property tax rights once a joint tenant is added.
  • In some states, a divorcing spouse is allowed to make claims against property in which the other spouse has a joint tenancy interest.
  • A gift can impact your eligibility for Medicaid.
  • Naming someone to jointly own your property is not the same as naming someone to inherit the property when you die.  When you add a joint tenant, any action you want to make regarding the property must be agreed to by the joint tenant, including the sale or refinancing of the property.

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Q. What are the pros and cons of using designated beneficiaries as a way to avoid probate?

A . Naming a designated beneficiary is required on certain types of ownership documents, i.e., life insurance policies and retirement accounts. You have the option to name a beneficiary on other types of property, including bank accounts and brokerage accounts.

You may also avoid probate by designating a beneficiary for the following types of assets.  If you jointly own these assets, each owner may need to sign the beneficiary forms.  The designated beneficiary has no rights to the property until the owner(s) die.

  • Checking and Savings Accounts. You can complete a pay-on-death beneficiary form along with the signature card provided by the bank for savings, checking or certificate of deposit accounts.
  • Brokerage Accounts: You can complete a transfer-on-death beneficiary form along with the signautre card provided by financial institutions.
  • Savings Bonds: You can name one designated beneficiary for each savings bond you buy.  You can also designate one beneficiary for Treasury bills and Treasury notes.
  • Vehicle: Some states allow you to name a designated beneficiary when you complete your car or boat registration forms: California, Connecticut,Kansas, Missouri and Ohio.
  • Real Estate.  If you purchase real estate, some states allow you to name a designated beneficiary when you complete a transfer-on-death deed.   Transfer-on-death deeds are currently only available in these states: Arizona, Colorado, Kansas, Missouri, Nevada, New Mexico and Ohio.
  • When naming a beneficiary, keep this in mind:
  • Beneficiary law overrides any instructions in your will or trust.
    If you name more than one beneficiary, ask what happens if one of the beneficiaries dies before the owner does, or at the same time as the owner. Make sure the results are the ones you want.
  • If you name more than one beneficiary, ask whether the beneficiaries inherit on a per stirpes or a per capita basis

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Q.   What are the pros and cons of using a living trust to avoid probate?

A. You can avoid probate by transferring the title of property you own as an individual to yourself as trustee of a living trust.  Trust assets are generally not subject to probate in any state.

Although there are some costs involved in setting up the trust, these costs may be offset (if you don’t have a trust) by the cost of probate and the cost to your heirs of not having access to the estate assets for some period of time.

In many instances the use of a living trust is the preferred way, and sometimes only way,  to avoid probate when you die.

A living trust can also avoid the need for probate as you age and need help managing your affairs, or for managing the affairs of a minor child.

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Probate Without a Will

WHAT TYPE OF PROBATE PROCEDURE IS REQUIRED IF SOMEONE DIES WITHOUT A WILL?

There are two types of probate estates:  (1) intestate; and (2) testate.

The probate procedure followed if the decedent  did not leave a valid Will is referred to as an intestate estate..

A probate procedure followed if the decedent did leave a valid Will is referred to as a testate estate.

Q. What is the difference between a testate estate and an intestate estate?

A. For a testate estate, the Will controls who receives the decedent’s assets and the Will nominates an executor who manages the probate process.

In an intestate estate, state intestate succession laws dictates who is entitled to the estate.  State laws also determine who the court appoints as the personal representative to manage the probate process.

One other difference between a testate estate and an intestate estate is the rules regarding surety bonds.  The person who prepares a Last Will and Testament can include instructions waving  the executor’s requirement to purchase a surety bond.  This requirement of the personal representative to purchase a surety bond cannot be waived in some state when there is no valid Last Will and Testament, making the probate process most costly for intestate estates.

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Q. Are the duties of the personal representative any different than those of the executor?

A. The personal representative appointed by the court has the same responsibilities as an executor named in a will.

The personal representative  must inventory the decedent’s estate and determine if the estate has probate assets.   If the estate has probate assets, the personal representative must determine whether to follow the state rules for small estate or a court supervised formal probate procedure.

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