Spouse leaves an estate eaten up by debts

Even where there is a will, sometimes estates are not easy. I received this note from a reader who is faced not just with losing her husband but also her home. Her note and my comments follow:

"My husband passed away recently .His will said give the house to me and all his cars belongs to house go to my name. But I found he owed Federal tax 200000, credit card 50000, mortgage 300000. House worth 500000. They have to sell the house, kick me out right away. I never work. I depend on him. Can i have option to stay in the house for a while? If I pay rent. what is the best option? If i can borrow money from my family i have right to buy the house?so i can stay. i don;t know how much i should pay to buy the house. i have to pay tax that he owed and mortgage or just pay his mortgage ? thank you so much ! I am so desperate."

This may seem overwhelming right now, but the legal issues are not that tangly. If you are able to borrow money from your family, it would be worth it to hire a lawyer of your own to deal with the executor on your behalf. The estate lawyer does not work for you, so do not accept legal advice from him or her.

I assume that you live in a province in which there is no automatic right for a spouse to own the matrimonial home. However, I don't know that for sure. Believe me, it is worth your while to ask a lawyer in your province what rights you have to that house, just to be sure. But so far it sounds as though you don't have any right to ownership, based on what you've been told by "them" (I assume the executor) so let's proceed on that basis.

The debts are the problem, of course. Every executor must clear off the estate debts before any beneficiaries can inherit any remaining assets. All of your husband's assets, not just the ones he left to you, must be used for that. His bank accounts, investments, cars, etc are all part of that. So is any life insurance he owned that is payable to his estate. Another thing your own lawyer could help you with is to ensure that debts are fairly paid so that one beneficiary is not bearing the brunt of the debt.

To be clear, you personally are not required to pay any of your husband's debt. His assets must be used for that though, even if it leaves you with nothing.

If your husband left you an RRSP, a pension, or a life insurance policy that names you directly, those assets are yours and need not be used to pay debts. They never belonged to the estate and so are safe from creditors.

Normally when there is a house in an estate, the executor may agree to allow someone to pay rent and live there instead of selling. But in this case there are significant debts to deal with and creditors are not going to wait to be paid just so you can live in the house. It may sound cold, but that's the bottom line. If you are able to purchase the house, that's great. You would have to pay fair market value (based on appraisals so that creditors cannot complain about the sale price). If you buy the house, the money goes to the estate and the estate pays the debts.

Your lawyer would have to examine the wording of the gift of the house to you. If the will says that you have been left "all my right, title, and interest" then you get only what he owned, including the unpaid mortgage. If he simply left you the house without that wording, you would probably receive the entire house, with the mortgage paid by the estate. This is of course in a world where there is enough  money to pay the mortgage without selling the house.

If the debts are paid and there is a small amount left in the estate, you might consider bringing an application for what is known as dependent's relief. Of course this will depend on who else is left a share of the estate. However, as a spouse who was financially dependent upon her husband,  you would have a clear right to get a larger share of whatever is left in the estate. Again, it's worth your while to talk to a lawyer to find out what your rights are and what possibilities exist. You only get one shot at this, so make sure you know where you stand.

If you are not sure what questions to ask, print this post and use it as a checklist. I'm sure your lawyer will have more ideas as well after reading the will and talking with you. Stay calm, and take steps to protect yourself before the assets disappear.