When a loved one passes away, their estate often goes through a process known as probate, where debts are settled, and assets are distributed according to the deceased’s will or state law. However, a less commonly discussed aspect of managing an estate is collecting debts owed to it. Whether it’s a loan your loved one made to a friend or unpaid rent from a property they owned, these are considered estate debts, and there are specific steps that the administrator can take to collect these debts to ensure fair asset distribution.

What Are Debts Owed to an Estate?

Debts owed to an estate represent money or assets that are due to be paid to the estate of a deceased individual. When a person dies, they leave behind not just liabilities (debts they owe) but also assets and receivables (debts owed to them). These receivables can be an integral part of the estate’s value and are crucial for the equitable settlement and distribution of the deceased’s assets among heirs and beneficiaries. Examples of these receivables may include:

• Personal Loans: If the deceased had lent money to friends, family members, or others under formal or informal arrangements, these loans are considered assets of the deceased person. The executor or administrator is responsible for collecting these debts based on the terms of the loan agreements.
• Business Debts: If the deceased owned a business or was owed payments for services rendered or products provided, these outstanding payments are debts owed to their heirs.
• Property Rents: For estates that include rental properties, any unpaid rent at the time of the deceased’s death is still owed to their heirs. This includes ongoing rent payments due after the deceased’s death until the property is legally transferred to new owners or the rental agreement is otherwise terminated.
• Sale Proceeds: If the deceased sold property or assets before their death but hadn’t received payment by the time of their passing, these proceeds are debts collectible by the administrator.
• Dividends, Interest, and Other Investments: Earnings from investments that were not paid out before the deceased’s death, including dividends from stocks, interest on bonds, or distributions from trusts, are considered debts owed to the heirs.

The estate’s administrator, often named in the deceased’s will or appointed by the court, is responsible for managing the property through the probate process. This includes collecting any debts owed to the heirs. The administrator has the legal authority to take necessary actions to ensure these debts are paid, which contributes to the decedent’s total assets before distribution to beneficiaries.

Steps for Collecting Debts for an Estate

The estate’s administrator must identify these debts early in the probate process to determine the total value accurately. This can be accomplished by: 

• Identify and Document the Debts: The first step in collecting debts before probate is to identify all the debts owed to the deceased. This involves gathering documentation, such as loan agreements, promissory notes, or any other evidence of the debt.
• Notify Debtors: Once the debts have been identified, the administrator should notify the debtors of the death and inform them that the debt is still due. This communication should be in writing and include details of the debt and instructions for repayment.
• Assess and Negotiate: In some cases, debtors may not be able to repay the full amount owed. The administrator has the authority to negotiate a settlement or payment plan that is in the best interest of the estate.
• Legal Action: If a debtor refuses to pay or disputes the debt, the administrator may need to take legal action to collect the debt. This could involve filing a lawsuit against the debtor to recover the owed amount.

Throughout the process, it’s essential for the administrator to keep detailed records of all communications, payments received, and actions taken to collect debts. These records will be important for the final settlement.

Don’t Leave Money on the Table During Estate Administration

Collecting debts owed to a deceased loved one’s estate is a critical part of managing the assets and ensuring fair distribution to beneficiaries. It requires careful documentation, clear communication, and sometimes, negotiation or legal action. At The Dayton Law Firm, P.C., we can help you ensure your loved one’s estate is administered correctly and all debts are collected. Learn how we can support you during estate administration by scheduling a consultation today.