Introduction to California Probate - Part 4(b)

In Part 4(a) of this series, we discussed and reviewed the process of Marshalling Estate Assets. Today we’re looking at another type of asset, i.e. a Debt that’s owed to the Estate.

Collecting Debts Owed to the Estate

A Personal Representative needs to exercise due diligence in searching out and enforcing contractual rights based on transactions entered into by a deceased person during their lifetime.

It’s important to realize that causes of action relating to transactions, and also those relating to personal injury, or class action lawsuits, all Survive Death (but they won’t survive forever). This means that the Personal Representative has a duty to gather information, to identify possible causes of action that belonged to the deceased person, so it can be determined if any are worth pursuing. If your Probate Attorney is not an experienced litigator, these causes of action can sometimes be missed.

Common examples include:

  • Unpaid Balances on Loans,

  • Pending Litigations,

  • Judgments in civil lawsuits,

  • Unlawful Detainer Matters, and

  • Advancements on Inheritances.

Unpaid Balances on Loans and Renewing Civil Judgments. The Personal Representative needs to consult with a Probate Attorney to be advised on laws relating to collection of unpaid balances on loans, and the time periods limiting the renewal of judgments to ensure they can be collected in the future. If the Personal Representative misses an important deadline, they can be personally liable to heirs and beneficiaries of the Estate.

Pending Litigation. When a deceased person dies during the pendency of ligation, the Personal Representative must act fast to preserve the rights of the deceased person. Failing to do so can cause irreparable harm to the Estate. If nothing is done, and a default is taken against the deceased person or the Estate, costly law-in-motion practice may be necessary to set the default aside.

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Presently, I’m closing a Probate in a rural County in California that was involved in a Partition and Accounting lawsuit. (That’s a suit filed by one co-owner of real estate against another co-owner to force the sale.) The lawsuit began during the deceased person’s lifetime, but only came to my client’s attention after a default was entered against the Estate. This turned into a huge cost and expense because Partition lawsuits include a statutory award of Attorney Fees to the prevailing party. In this Probate, the Estate was on the hook for the opposing party’s Attorney Fees and those amounted to over $25,000.

Unlawful Detainer Matters. When rental properties are owned by the Estate, the Personal Representative is bound to collect those rents. When a tenant fails to pay rent, the Personal Representative has a duty to evict the non-paying tenant. In a recent Probate I handled, the Estate owned two rental properties- both rentals had been poorly managed for some years and were inhabited by non-paying tenants and squatters. Fortunately for my client, the BPE Law Group are skilled Real Estate Attorneys and the former tenants and squatters were swiftly evicted and ejected from the properties.

Advancements on Inheritances. When an heir or a beneficiary owes money to a deceased person, a signed acknowledgment of the debt, or an agreement to offset it from the beneficiary’s share of the Estate needs to be located. As well, significant income tax consequences could exist when forgiving or cancelling a debt. On this basis alone, the Personal Representative should consult with a CPA and carefully consider not off-setting a debt owed to a beneficiary.

An experienced Probate and Estate Attorney will advise their client to file the inventory and appraisal within the four-month deadline, even if all assets have not yet been identified. A supplemental inventory and appraisal can then be filed prior to the Probate being closed.

In Part 4(c) we will look at how to handle the debts and taxes of the estate. As always, should you be facing a probate situation, you should retain competent counsel to assist you. The attorneys at BPE Law Group have significant experience in guiding clients through all facets of the probate process.