Part of the process of administering an estate after a death will be to value everything that makes up the estate. Some estates are more complex than others, and this may be a significant task if the person who has died had extensive assets.
The term ‘asset’ is wide-ranging. It applies to obvious things such as property, vehicles, art, and the contents of any savings accounts. Other assets can include stocks and shares, digital property and intellectual property. Something can be considered an asset even if it wasn’t currently in the ownership of the person who has died but was owed to them.
For example, if the person had sold a high-value item and had not yet been paid the full amount, this will now be owed to the estate. Equally, if the person who has died had loaned money to a family member or friend, that money should be called in by the representatives of the estate.
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Money owed to the estate is also likely to be a concern if the person who has died owned a business. If you’re responsible for an estate of this sort, you might find it helpful to read our blog posts on winding up an estate for someone who was self-employed or involved in a business partnership.
Will you always be able to call in debts that are owed to the estate?
Theoretically, personal representatives are duty-bound to call in any debts that are owed to an estate. However, in practice this is not always so clear cut.
This is especially likely to be the case when the debts in question are due to informal loans between family members or friends. In these situations, there’s often a lack of paperwork, which might make it difficult to enforce any repayments on behalf of the estate.
There may also be a question of whether the money was really intended as a loan or if it was actually a gift. A dispute like this can be very difficult to resolve if there is no paper trail to use as evidence.
What if the creditor is a beneficiary or executor of the estate?
The question of debts owed to an estate can be made even more complicated when the debt is owed by someone who has been named as a beneficiary of the estate, an executor, or even both.
It’s not uncommon for this to happen, as money is often loaned between family members, but this can make for some difficult conversations, especially if the terms of any loans offered were not made clear.
In these situations, it will be really important to ensure there is clear and open communication between everyone involved.
What if an agreement can’t be reached?
When there are concerns about calling in a debt owed to an estate, we’d recommend seeking specialist legal advice as early as possible. This can help to ensure all parties know where they stand legally.
If an agreement can’t be reached with the assistance of this legal advice, your solicitor may recommend mediation. This process could help everyone involved to come to a mutually beneficial agreement on how to resolve the situation.
Depending on the circumstances, if mediation does not resolve the issue, it might be appropriate to consider further legal action. However, taking on a claim of this kind is a big commitment and it’s important to understand that there’s no guarantee of the outcome.
How can these situations be avoided?
Clear communication throughout the process of administering an estate can help to avoid disputes arising about any money that may be owed. It can also be very helpful to seek legal advice at the outset, as this can clarify the issue and direct personal representatives to the correct course of action.
If you are in the process of estate planning yourself, this is something we’d recommend thinking carefully about. For example, ensuring you have left clear paperwork regarding any loans you have given or any money you are owed can make things much more straightforward for your personal representatives if and when the time comes.
You may also choose to mention any loans you have given in your Will, along with how you would like them to be handled in the event of your death.
This could involve requests that:
- Your executors call in any debts in full.
- The outstanding balance owed to you by a beneficiary is taken from any legacy due to them.
- You wish any outstanding amounts to be considered a gift on your death and therefore do not want any further debts to be called in. (This could have tax implications if the original loan was made less than seven years before the date of your death).
If you have any concerns about how any debts owed to you might be handled after your death, or if you’re currently acting for an estate where this is an issue, our knowledgeable solicitors are here to help.
How Roche Legal can help
We are reassuring experts who can help you with a wide range of legal matters. Please get in touch if you need legal support with:
- Trusts and Estate Planning
- Wills
- Probate and Estate Administration
- Contested Probate and Will Disputes
- Powers of Attorney
- Court of Protection matters
- Presumption of Death Applications
- Missing Persons Guardianship Applications
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