Parts 4(a) and 4(b) of this series covered the various means used when Marshaling Traditional Assets and we examined the process of Collecting Debts Owed to the Estate as well. Today we look at how the Personal Representative should handle Debts and Taxes of the Estate.
Handling Debts and Taxes
Debts and taxes owed by the Estate are both liabilities however they are handled quite differently from one another in the Probate process. While taxes must be paid from available assets of the Estate, the Personal Representative needs to be cognizant and should not pay unsecured debts until a claim is timely filed in the Probate Proceeding. Showing preference in paying debts can turn into a big mess.
Unsecured Debts. The Personal Representative needs to search the deceased person's records, mail, and credit reports to identify known creditors. Generally speaking, all creditors of the Estate have four months, from the date a Personal Representative has been appointed to file a creditor claim in the Probate. That time can be shortened to sixty days, if the Personal Representative provides a known creditor with notice of the Probate. By diligently searching for known creditors, and proactively noticing such creditors, claims can be limited, and assets can be preserved for heirs and beneficiaries of the Estate. Negotiations are also very common when it comes to resolving unsecured debts, many of my clients have paid fractions of the alleged debts by reducing interest and penalties.
Secured Debts. As to secured debts, such as a mortgage or a deed of trust, these demand prompt attention. When debts are secured by real property (for example a deceased person's home), the owner's death does not delay or prevent foreclosure. In cases where a foreclosure action has been commenced, an experienced Probate attorney can guide a Personal Representative to a favorable outcome. Sometimes saving the home from foreclosure, and sometimes preserving value of the home for heirs and beneficiaries of the Estate. Negotiations in the form of short-sales, and delaying trustee sales are common remedies that can be taken advantage of my an experienced attorney.
Taxes. Income taxes, Gift taxes, and Property taxes all need to be considered and dealt with by the Personal Representative in a timely manner. A tax professional or CPA should be consulted with immediately, and certain notice deadlines need to be met. One example includes noticing the Franchise Tax Board. This notice must be made within 90 Days of the Personal Representative having been appointed. Also, the Personal Representative should file a Notice Concerning Fiduciary Representative with the IRS as soon as possible.
Unlike the secured and unsecured debts, taxes generally cannot be negotiated— unfortunate reality. It's therefore best to get all back-taxes paid timely to prevent additional penalties and fines from being assessed. Some hardship exceptions exist, but are available only under very limited circumstances.
The process of Marshalling Assets, Collecting Debts Owed to the Estate, and paying Debts and Taxes, if not carried out properly can cause significant delay and expense in the Probate. Contact a Probate and Estate Attorney at the BPE Law Group for guidance when carrying out these steps.