Probate Portfolio Management

Recovery of Assets in a Probate Estate

We would all like to think that we will die not owing anyone anything, and maybe even have a nice inheritance for our children and grandchildren. But it doesn’t always work out that way. When a person dies still owing money to creditors, those debts don’t just die with them, and creditors may have their work cut out for them when trying to collect. But before we get into the details of consumer probate portfolio management, let’s take a step back and look at what happens to the assets of the consumer when they die. 

The Decedent’s Estate

When a person dies, all their possessions, money and property become a part of their estate. Determining what happens to the estate depends on a few things:

  • Has decedent has provided for distribution of their estate in a will. (A will is a legal document which outlines a person’s wishes for what will happen to their estate after they have died.)
  • If there is no will, the state’s statutes determine how the decedent’s assets will be distributed, but there are other things to also consider, such as:
    • Was the decedent married?  And if so, did they live in a community property state? (In some states, surviving spouses generally get a cut of the estate, often in front of creditors).
  • Does the decedent have minor children?
  • Does the decedent have co-owners/co-signers on their property, accounts, assets, etc.?
  • Has the decedent set up any trusts?

Next Steps for Managing a Probate Portfolio

Again, depending on the state, if there is a will, then it must be filed with the probate court (depending on the state, this court may also be called the surrogate’s court, register of wills, orphan’s court or court of common pleas, or it may be handled at the family court, district court, chancery court or circuit court level).

In some states, you must file a probate action even if there is no will.  The will states the person who the decedent has chosen to administer the estate (called the administrator, executor or personal representative). Sometimes that person is an attorney, but more often it is a family member. 

The administer of the estate must determine what assets and debts the decedent owed, how to distribute assets and pay off those debts, and then disburse the remainder of the estate as the decedent outlined in their will. Generally, the exempt property comes off the top, then the remainder goes to the creditors. For a large lender, the probate portfolio can be quite expansive. 

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However, only about 25% of people who die have a probate opened at the court.  

If there is no will, there may or may not be a need for opening a case with the probate court.  If all accounts are co-owned with a spouse or someone else, and if all property is co-owned, the ownership can just pass onto that person. Additionally, some assets may be in a trust, which is generally not included in a probate estate. 

However, if there is still a balance owed relating to property, that debt does not just go away, and the co-owner must continue to make payments on the debt until it is paid off. This also goes for co-signers on credit cards and co-signers on loans, if one of the co-signers dies, the debt must be paid by the other co-signer (with the exception of student loans: if the student dies, the remainder of the loan is not required to be paid by the co-signer). 

If property is not co-owned by anyone, and there is no will, then there is a hierarchy of how the property is disbursed. In this case, a probate must be opened in order to legally transfer the property to the next of kin. But again, if there is money owed on that property, it must be taken care of by whoever inherits the property. Another alternative is that the person who is to inherit decides to give the property back to the creditor. 

If there is no physical property and just a bank account, there are forms that can be filed with the bank along with the death certificate to transfer ownership of that account to the next of kin. With a large probate portfolio, this can be quite complex and labor-intensive.

What Happens to a Decedent's Assets? What About Credit Card Debt? Who is Responsible?

Who is responsible for a deceased person’s debt? As mentioned above, the debt of a person does not die with that person. It must be paid. If there is an estate, the person administering the estate must make an effort to determine what debts are owed by the decedent and must try to pay them back before any money is given to the heirs. They do this by collecting the mail of the decedent to determine bills owed, placing a notice in the local newspaper alerting creditors of the death, (the notice also states who the contact person is for the estate), and going through the decedent’s paperwork to determine property, loans and debts. 

Creditors generally have a set duration to make a claim in an estate or they are permanently barred from collecting their debt. This is why it’s important to pay attention to your probate portfolio,

If the estate does not have enough money in it to pay off a debt on physical/secured property (house, cabin, car, boat, etc.), that property must be returned to the creditor. Or if the property has a co-borrower, that person must continue to make payments on the property, or work with the creditor to give the property back. There may also be an option for a family member to refinance the debt in order to keep secured property.

For unsecured debt, if there is not enough money in the estate to pay everyone in full, creditors may have to accept a settlement of less than the full balance. Unless there is a co-signer on the account, in which case the co-signer will be responsible for continuing to pay on the account, as it is assumed they will also continue to use the credit card, and have benefited from previous charges to that credit card.  

How Do I Find Out If a Probate Has Been Filed?

This is where the process gets a little tricky. There are over 3,300 different probate courts in the United States. Each county has a probate court, and some have multiple locations. There is no single source or database for all probate estates filed in the U.S. A probate portfolio manager must search at the county level to see if a probate has been filed. That means you must know which county to search in. A probate can be filed in the county where the decedent last lived, or where they owned property. So, a little research may have to be done before you begin your search. 

Once you determine where to search, the next step is determining how to search. Not all courts can be searched online. Some require a phone call. Some require a letter. Some require a search fee. In all cases your search is only good on the day/time of your search. For example, if you pay a fee to a court in New Jersey on August 15th to search to see if a probate estate has been filed, and there is no record of it, but a case is then filed on August 20th, they aren’t going to reach back out to let you know. So timing is essential in searching for a filed case. It is also essential that you know the exact date the person died to help determine when you should start looking for the probate filing. 

Searching at the court level isn’t the only way, you can often get information from relatives or next-of-kin about a probate filing. If there is a surviving spouse, that person will know if there has been a case filed, or if one is going to be filed. You may also be able to get information about who the administrator of the probate will be, and, if an attorney is involved, you may be able to get their name and phone number so you don’t have to bother the family going forward. If you plan to contact the family, it is suggested that you wait a reasonable amount of time after the date of death, usually 30 days. And in all cases when talking to a family member, be very respectful, kind and sympathetic. 

How Do I Collect From a Probate Estate?

Once you know a probate estate was filed, you must now work through the official probate process for that state. You must file a probate claim form that outlines the nature of the debt, the balance due, proof of the debt and balance. If you don’t already have a database of information of each state’s probate rules/process, the easiest way to find information is to look online for the probate process in the state and county of the probate. Not all states adhere to the same probate rules. There is a Uniform Probate Code, but only 19 states have adopted it fully. A phone call to the county clerk can also be helpful, they are generally very nice and will walk you through the process in their county. Again, with a large probate portfolio, this can be quite complex.

Each state will be consistent within the state for the probate timeline and claim filing process, but the actual claim form may differ from county to county within the state. So best practice is to check with the county prior to creating the probate claim form. Some counties are very specific as to the format of the claim form, the order in which the information appears on the form, the font type and size on the form, and a few even require a certain color of paper of the form. 

Another difference between states is where to send the original claim form, and where to send a copy. In some states you must send the original to the administrator of the estate, or their attorney, and then a copy to the court, and in some states it’s the opposite, where you send the original to the court and a copy to the administrator or their attorney. So, again, doing research on your probate portfolio beforehand is strongly suggested so your claim is not rejected for a formatting or filing error. 

How Long Do Probate Portfolio Managers Have to Collect From an Estate?

As you may have guessed by now – that varies too.  There are probate claim form filing deadline differences between the states. Some timelines run from the date of death, some run from the date the estate was filed, some start when the executor is appointed (called “granting letters of testamentary”) and some deadlines depend on when the creditor should’ve known about the estate (typically when notice appeared in the newspaper). But all have a deadline, and average about 90-180 days from date of death. If you miss the deadline, you will likely not receive any money from the estate. In a large probate portfolio, this can be a considerable write-off.

Is There an Order of Payment of Estate Debts?

Remember, in most cases, it is a family member who is administering the estate and going through the probate process. This will likely be their first time doing this, and if they don’t involve an attorney, and don’t have any legal background, it may be very confusing for them. You may have a case where the administrator just starts paying the debts as claim forms come in. If the estate doesn’t have enough money to pay everyone, you may be left out if you file late. So, knowing that someone has died, and knowing if a probate estate has been filed becomes a bit of a race to the finish. 

However, there is an order of payment of estate debts. Typically, fees are paid first, things like court costs, attorney fees, executor (administrator or personal representative) fees and estate taxes. These are followed by burial and funeral costs. There may be a family allowance provided to the family if they were dependent on the deceased for living expenses. After that are federal taxes, medical expenses not paid by insurance, and then property taxes. Credit cards and unsecured personal loans are generally last. If no money is left after the other expenses are paid, they will need to be written off. This can have a huge impact on a large probate portfolio.

How Do I Collect Debts After Death with No Probate Estate?

As I mentioned above, only about 25% of people who die have a formal probate opened at the court. The remaining 75% either don’t have a will, don’t have any property, or if they have a co-borrower, co-signer and/or co-owner on all their accounts and property, there may be no need for a formal probate process. In these cases, it’s a little more difficult to collect, but still possible. 

Most probate portfolio collections start by a letter to the surviving family, sent to the last known address of the decedent. This notifies them that there is money owed. The letter should include all disclosures that would normally be sent to the debtor.  This letter is usually followed up with a phone call to the last known phone number of the decedent, however, remember that there is generally a waiting period after the date of death before making this initial phone call. If there is no co-signer on the account, and the decedent does not live in a community property state, then you cannot suggest to the surviving spouse or family member that they are obligated to pay the debt. However, if there is money in the estate, most family members will want to make good on their deceased family member’s debts, and will want to pay it off, if there are funds to do so. Often creditors can open a probate case themselves for the purpose of compelling payment on an account.

If the debt is secured with property, you will want to find out the intentions of the family for that property. They cannot just keep it without paying for it. If there is no money to pay the balance owed for the property, and nobody intends to take over the payments (with the proper assignment and re-writing of the loan), the family must make arrangements to surrender it to the creditor. If they refuse, you will likely have to begin a legal action to collect your property. If your probate portfolio is of any size, this requires substantial resources to pursue.

What Are My Options for Collecting Debt From a Probate Estate?

A probate portfolio manager has several options when determining how to collect from a deceased person’s estate:

  • Do nothing – If it is credit card debt and the balance is small and there is no probate estate filed, many creditors decide to just close the account and do nothing. In most cases, this is the most cost-effective way to handle small balance credit card debt.
  • Do it yourself – Creditors may have an in-house department or team that is trained to handle probate collections. However, it is not suggested to try to handle in-house with your regular collection team. There is a different talk track when trying to find out information about the estate, and when talking to the surviving family. Additionally, if there is a probate estate filed with the courts, as mentioned above, there are different rules in the different courts, often-times right down to the font and color of paper used to file a claim. If you intend to handle these accounts in-house, it is suggested that you do your research and set up and train staff specifically for this purpose.
  • Outsource to a specialized collection agency or law firm – There are several collection agencies and collection law firms that specialize in handling debt of deceased persons. Their collectors are specially trained to handle the delicate conversations that take place in these situations. They also know the laws in each state, the requirements for searching for an estate, and for filing claims. Most are paid a percentage of what they collect, much like a regular collection agency.  If you haven’t outsourced collections to agencies in the past and would like more information on how this process works, you can find out more in the article How Do Collection Agencies Work? Using Third-Party vendors to Collect Debt.

Collecting debt from a deceased person can be tricky, and must be handled with care, but it can be done. Whether you are collecting from someone who has a probate estate, or are collecting debts after death with no estate, creditors should have a strategy in place along with policies and procedures for how they intend to collect debt from deceased persons. With a little preparation up-front, you will be prepared for this inevitable situation.