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Thursday, June 24, 2010

Executors collecting debts of the deceased


One of the many jobs that executors must do on the estate of someone who is deceased, is figure out what debts are owed to the deceaased, and then collect them. I would rank this among the least enjoyable of executor's tasks (not that most of them are a barrel of monkeys, mind you).

Debts owed to the deceased can range from large (e.g. an insurance settlement from a car accident) to very small (e.g. a refund from the local newspaper once the subscription is cancelled).

The general rule is that the executor must collect all legally enforceable debts. Most debts owed to a person continue to be owed after that person passes away. This is why the executor, who represents the deceased, is the one who has to collect them.


There are a couple of ways in which the Will itself can help the executor:

One of the most common debts on an estate is a loan to one of the children that the deceased parent made during his or her lifetime. Ideally, the deceased parent has given the executor some direction in the Will about whether to collect the debt. If nothing has been said, then the executor is obligated to collect that loan. The executor doesn't have the legal authority to forgive that loan if the Will doesn't allow for that. This is a really difficult thing for the executor to deal with, especially if the executor and the beneficiary who owes the money are siblings.


A way of dealing with that debt, rather than actually collecting money from the beneficiary, is to reduce the amount of money the beneficiary is going to inherit.


If you are a parent who has lent money to a child, or a child whose parent has lent money, make sure the repayment (or not) of the loan is mentioned in the parent's Will. This may certainly help to cut down on disputes.


Another place where the Will itself can be very helpful to the executor is the section of the Will that contains powers or authorities for the executor. In some Wills, there is a power to settle this kind of matter as the executor sees fit.


This clause could be helpful where the amount of the debt owed to the deceased is so small that it will actually cost more time and money to collect it than it is worth. The existence of a small debt puts the executor between a rock and a hard place, because he or she is obligated to collect all debts owing, including the small ones. However, if the power referred to is included in the Will, this will allow the executor to decide that a given debt is just not worth it to collect.


All debts that are owed to the deceased, once collected, should be put into the executor's estate bank account that every executor opens up once he or she starts working on the estate. This keeps the estate's money separate from the executor's money and keeps the records straight.

40 comments:

  1. this is a tough job, dealing with this cases might take some more time...

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  2. Yes, being an executor certainly is a tough job, probably more so than most people realize.

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  3. My husband was named on his grandmothers but than we got a letter from probate that since they signed an agreement on a loan back in 2003 he was not getting his inheritance!This does not seem like his grandmother AT ALL!My husband said that he took care of that with his grandmother years and years ago!This really cleared it up for me....His aunt is executor and while emptying out the house she must of came across letter(His grandmother was a hoarder and saved everything even had a calendar still up on wall from the 1970s!I knew she would not take him out of will!This explains why he is named first on will....Why be named at all than!Cannot believe his aunt would go this low!What I dont understand is how probate did not ask if debt was settled..Now sadly we cannot confirm with his grandmother as she has passed!My husband has been so sick over this but I just knew she wouldnt have done this!If his grandmother did in fact ask him to be removed for the "debt" shouldnt there be a legal paper that she signed taking him off?

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  4. I purchased your BC Probate Kit and found it to be incredibly helpful. I am struggling with a debt owed to the deceased by a beneficiary (her daughter, my sister). The beneficiary sent me a notarized letter stating that she acknowledges the debt and rather than pay the estate, she requests that her portion of the inheritance be decreased.
    I can't figure out if I should noted this in the Statement of Assets and Liabilities and the distribution plan I submit to the courts or simply do the math and reduce the payment to the one sibling and increase it for the other four.

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    1. You would do both of those things. The distribution plan that you submit should describe exactly what you will pay out to each person.

      There is nothing wrong with reducing an inheritance rather than actually requiring repayment. In fact, this would be the usual way of dealing with it.

      When doing the math, remember to add the entire debt back into the estate, then divide it by five, not four, if there are five beneficiaries.

      Lynne

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  5. Thanks Lynne, You are really on top of your blog and it is greatly appreciated....

    The Will directs me to liquidate everything and divide the residual 5 ways, so the distribution plan simply says "one fifth of estate residue" to each beneficiary.

    Should I add the debt under the personal property section or should I state One fifth of estate residue minus $12,000 in the distribution section?

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    1. It isn't personal property, in fact it's really only a notional amount. So keep it in the distribution section.

      Lynne

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  6. Me again with the sister owing money issue - I figure out that she should receive 1/5 of the residual minus $9000 (4/5 of what she owes)

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  7. How much time after death does executor have, to go after collecting money from debtors to the estate? Is there a time limit? like 1 yr after death??

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  8. If the debtor is named as a beneficiary rather than being named in the will how does this affect the collection process? Would the debtor still be able to provide an affidavit stating they want their debt to be deducted from their inheritance?

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    1. When you say "named as a beneficiary" but not in the will, I assume you must mean named in something like an RRSP or a life insurance policy. If so, this money will get paid out directly by the bank or insurance company to the beneficiary and have nothing to do with the estate.

      If the person is not named in the will, how could anything be deducted from their inheritance? There is no inheritance.

      The beneficiary is going to have to pay directly to the estate the money they owed the deceased.

      I would find it extremely unlikely that someone receiving an RRSP would have any luck asking a bank to pay out a portion to someone else. These are registered products and have pretty strict rules. However, I don't know that for sure so I'm going to check with one of my bank manager buddies on that.

      Lynne

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  9. My question is when a person passes away and they owned a business, would any/all outstanding invoices be subject to a time limit? Say these invoices were not collected within 2 years and now the person passed away? Speaking from Ontario, have you come across this and a timeline or maybe a reference number and book?

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  10. Another twist to the debt collection process. My brother borrowed numerous amounts of money including charging 100k in credit cards. Mom made the monthly payments for years. She kept track of what was owed but there was no formal loan agreement just my brothers promise to pay off the credit cards. Needless to say none of this ever happened. Is my brother liable for the balance due on the credit cards as well as the monies paid out by my mom throughout the years? The other funds came in the form of cashiers checks, is he responsible for paying this back too. There is nothing in the Will forgiving any loans.

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    1. Your brother should be liable for all significant sums of money borrowed, whether those sums were given to him in cash, cashier's cheques, or credit card usage.

      Lynne

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  11. What about interest on debts to the deceased after they have passed? My grandfather gave out loans and charged interest on the debts. Would the interest cease to accumulate after he has passed? It has been 6 years since he passed and the executors are trying to say that, during that time, interest was still accumulating. They didn't even have an estate account to collect debts until last year. They are taking all debts off everyone's inheritance, which makes sense.

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    1. In the absence of a written document that says otherwise, interest usually continues to accrue until the debt is paid. So, it should continue to accrue after your grandfather's death, until his estate is settled and distributed. By the way, I sure hope there is a really, really good reason for this estate still being open six years after your grandfather's death.

      Lynne

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  13. What if the estate has already been administered? Can the beneficiaries collect on the debt? or is this something only the estate/trustee can do

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    1. Only the estate administrator has the legal right to collect money on behalf of the estate.

      Lynne

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  14. Was reading the Alberta Wills and Succession Act Section 109(1) dealing with Alleged Loans. Is a court order required to subtract loans made to a beneficiary from the residual amount? I identified all amounts on NC7 Schedule 5 is the Debts section. Have not got probate yet.

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  15. looking for some advice. I am in Ontario. I was made Appointed Estate Trustee over my father's estate, as he died without a will. At the time of death(and currently) there is a fairly large outstanding loan owed to the estate. the loan was given to a real estate agent to invest and now that my father has past my siblings want to collect on the outstanding loan. I wanted to know if, in Ontario, the agent has to pay it back or can he get away with not paying it? My lawyer's Law firm have paid probate fees based on the assumption that he will pay back this loan ($2000 worth of probate fees) and I am worried he won't and we will have paid $2000 in probate for an estate that without the loan is only worth $3000. Any advice you have or insight you would be much appreciated. If you know of any specific laws that can helps us collect this loan faster that would also be appreciated

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  17. Hi sister and brother are co executors on my mother's estate. Shortly before my mother died my sister found out my mother's bank statements and we found out that my brother had borrowed $30,000.00 from my mother over the course of two years. She then found a ledger my mother had kept detailing the amounts he paid back to her. She deducted $50 from the loan each time he took out the garbage or mowed the lawn. He was paying back $200 a month until 2014 when he got hold of my mother's will and the loan agreement and he destroyed the loan agreement. The ledger show he still owe $12,000. My sister does not want to pursue the loan and wants to destroy the ledger (she is afraid of my brother). I want to pursue the loan as it caused real financial hardship to my mother during her last years of life. Can she drop the loan and destroy the bank records and ledger. Or do I as the third heir have any say in the matter.

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  18. I was not named or included in any way in my mothers will. I am however a beneficiary of investment funds. The executor wants to pursue me for money my mother lent me in the past. If he litigates, does he have to pay the legal fees or can he charge that to me somehow?

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    1. He will ask the judge to order that you pay his costs. The general rule is that whoever wins the lawsuit can ask the judge to make the losing side pay. If he wins, you pay. If you win, he pays. That's assuming the judge agrees that the general rule should apply given the specific facts of the case. The judge can always override the usual rule if he or she has a reason for that.

      Lynne

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  19. My brother owes more money to my mother's estate than inheritance. If he doesn't pay it is the executor financially responsible for it?

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    1. Yes and no. The executor is not responsible for paying any debts of the estate personally. However, the executor IS responsible for collecting debts owing to the estate. If your brother won't repay the estate for what he owes, the executor should consider a lawsuit to recover it.

      The executor is in a tough position. He or she is not allowed to simply let a debt go without making efforts to recover it. This is because if the executor doesn't collect that debt, the beneficiaries are being short-changed. They can sue the executor for the loss.

      As with any lawsuit, the executor needs to consider many factors before proceeding. How much would be recovered vs how much it will cost to get that money. Your brother's ability to pay. Whether your brother owns a house or other assets that could be seized or sold. The damage that would be done to the family relationships.

      In reality, many of these issues end up being settled among the parties (executor, beneficiaries, and debtor) in a way that all can live with.

      Lynne

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  20. Cynthia McDonaldJuly 19, 2018 at 6:20 AM

    While she was alive, my mother gave me cash that she withdrew from her RRSP. The money was meant to be a gift, not a loan. I am a beneficiary under the will and now the executor is claiming my allocation will be reduced by the amount of the gifts. The executor claims that in Ontario, withdrawals from an rrsp given to children are presumptively loans, and absent proof to the contrary, owed back to the estate. Is this correct?

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    1. Yes, it is correct. The fact that it came out of an RRSP doesn't matter; it could have been any source. Check your mother's will to see whether she says anything about the funds in the will; she may have included a statement in which she says she does not want it repaid. Otherwise, your inheritance should be reduced by that amount because the money you received is considered to be an advance on your inheritance.

      Lynne

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  21. If someone who owes me money, and there is proof, has passed away and the executor and probable beneficiary is not communicating with me, how can I file a claim for this money owed?

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  22. How would this work? My aunt (biological uncles wife) gifted us 13,000$ to purchase our house. I have a letter stating it was a gift and no repayment is necessary. I of course started paying the $ back to her, she then passed away and now my uncle and cousin are coming after me saying I owe them 13k while my aunt said not to worry about the money after she was gone. Do they have a leg to stand on even though I have the signed letter?

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    1. This whole transaction would have been much cleaner if you had not paid back some of the funds. The fact that you were repaying it makes it look as if it is a debt and that you know it's a debt.

      You mentioned that you have a letter, which I assume is a letter from the aunt who gave you the money. It's not a contract. I wouldn't say there is "no leg to stand on" but the situation is not as clear-cut as it could be.

      I'm assuming that your uncle and cousin are the executors. Otherwise this would be none of their business. I'm also assuming that you are not a beneficiary of your aunt's estate, otherwise they'd just be threatening to withhold your share. If I'm correct on those assumptions, they will have to take you to court to get a judgment to collect on the debt. That is where you'd rely on your letter. I'd say your chances of success were pretty good, if the letter actually does clearly state that the funds are an outright gift.

      Lynne

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    2. Thank you Lynne. Yes, the letter states no repayment is ever necessary. Too bad it has gotten so ugly :( I repaid it back out of good faith and then stopped when she said to. That is why a loan contract was never written before she passed. :(

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  23. Here is a question. My aunt sadly passed away - She gifted me 12000 to purchase a house, when she was alive I repayed it down to 6600$. Before she died (had cancer for a long time) she said do not worry about the remainder. My uncle is now coming after me. I do have the original gift letter that she signed for the 12000. Does my uncle have a leg to stand on? Thanks.

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    1. I don't suppose you have anything from her in writing about not having to pay the rest?

      From what you've said, the evidence at hand shows that she gave you a loan and she documented it. You acknowledge the loan and repaid just over half of it. You have only a verbal instruction from her that the rest is forgiven.

      So, yeah I'd say he has a leg to stand on. Executors are required to collect in the debts of an estate and it appears you owe the estate a debt.

      If there were any witnesses to your aunt's statement, or anyone she might have mentioned it to, that would certainly help your case.

      Lynne

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  24. My mother passed away and a family member did not pay a loan that my mother co signed. The person walked away from loan and my mother was left with the debt can I use as I am a benifecery of the will

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    1. The proper person to start this lawsuit is the executor, who is the legal representative of the estate. If the executor does not sue for it, and it's an enforceable debt, then your argument is with the executor and not with the person who defaulted on the debt.

      Lynne

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  25. A father asked a child to take over a vehicle 20 years ago. The vehicle was legally transferred to the child. The child was to make the payments without any legal loan or formal agreement in the child’s name, just make the payment every month. The child honoured the commitment and paid off the remainder of the monies several years later on the vehicle to the father, and the vehicle was traded for another vehicle. The father has never made any claims in those past 20 years to the child verbal, written or otherwise of any monies owed. There is no record of any monies owed or otherwise. Twenty years or so later in the fathers will, the father makes a claim that monies are owed. This is only a claim and not supported by any documents. Does the child owe this claim?

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  26. My brother owes my dad's estate money. He borrowed. I am executor my mom has asked him for less then quarter of it back. He refuses can I put a lean on his car boat camper extra. To try and get money owed back to my mom

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