Did you loan a sum of money or an asset to a friend or family member who has since passed away? This is a particularly challenging position for personal friends as it combines their time of grief with the need to recoup some or all of that loan and avoid a potentially damaging financial loss. So, what should you know as a creditor of the estate? Here are five key things.
1. Personal Debts Are Debts
If you entered into a formal loan arrangement with the deceased, you are a creditor just like companies who loaned them money. You have a right to be paid from the estate assets during probate. The challenge with most family or friend loans is that they lack formal contracts. But even without the standard contractual documentation, you can still assert your right as a lender if you can prove the debt in other ways.
2. Unsecured Debts Are Grouped
Generally, cash loans among family or friends are unsecured loans, meaning there is no collateral attached. As a holder of an unsecured loan, you will be grouped with other unsecured lenders to receive full or partial payoff by the estate. If the estate doesn't have all the funds needed, you'll be paid in an apportioned manner after priority debts (like final expenses) are paid.
3. You Can Get Your Property Back
If you loaned your loved one a car or other asset, you generally have the right to receive the asset back. Your loan is essentially treated like a secured loan where the lender can foreclose or repossess the asset if no one makes the payments. The executor cannot simply keep the asset for the estate.
4. You Have a Deadline
Creditors must be notified of the person's passing, and then they have a prescribed amount of time to submit a claim to the estate. This duration is generally between 90 and 180 days, so check with the state probate rules where probate is being administered.
5. You Benefit From a Lawyer
If you have an informal loan or you worry that the executor may not handle your claim fairly, engage an attorney to represent your interests through your probate claim. In addition, if your emotional ties to your friend or family could make it a challenge to seek proper reimbursement, an independent lawyer can take the burden off.
Have more questions about how to handle a loan made to someone who passed away? Start by meeting with a probate attorney in your state. They will work with you to boost your claim to some of the estate, complete all the documentation and steps needed, and understand how much you may be able to get back.