Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle! Today’s episode of Legal Tea is the “cautionary tales” topic. And on these “cautionary tales” episodes of Legal Tea, we normally talk about real-life cases with real-life clients that are things me or my office have worked on -or they are things that I think are generally good things to be aware of, so you don’t turn into a cautionary tale on my Legal Tea podcast one day! Today’s episode is a little bit of both, in a way, because today we are going to talk about a real-life story where someone died, their sibling stepped up to be the Executor, and she ended up having to navigate some really not-fun things. Thankfully, she had us helping her – but even though she had great counseling, it still wasn’t fun. Granted, it’s NEVER fun to serve in that role, but her role was made extra difficult because her brother left things in a really messy state. So, we’re going to talk about what happened in that particular case, then what you can do and focus on to set your Executor up for better success!
Let’s dive in – so, let’s start with Bob. Bob created a pretty basic Will in 2018. Through his estate planning process, he was going back-and-forth between a Will and a Trust – and ultimately, he decided to do a Will. (Fast forward to today, I wonder how that would have changed things…and we’ll briefly touch on that in a few minutes…) Anyway, so back in 2018, he created a Last Will and Testament. He wanted his sister, Sally, to be the Executor and he even wanted his assets/his estate to go to Sally. When I was reviewing things for this episode, I saw a note that we put in our database that said, “Bob wants Sally to give his kids the money as she sees fit over our counseling that recommends otherwise.” (Yeah, side note – I can’t legitimately sit her and say that’s ever a good idea…) Anyway, so fast forward time, he passed away about 5 years after he got his Will done.
We bring in his sister, Sally, to start discussing next steps and the process – and well, because he didn’t do a Trust, we had to go through the probate court process for his Will. At this meeting with Sally, she shared that she has been keeping an eye on his mail and email – and it seems that Bob left many, many debts. From credit cards to IRS debt to HOA dues … and some of them had actually filed liens on his house. In addition to this debt, Bob was on Medicaid – and Sally didn’t even know. Well, imagine Sally’s surprise when she learned that Medicaid filed a claim on Bob’s estate for a large amount of money. So, needless to say, Sally had her hands full.
At one point, we thought the estate actually may turn into an insolvent estate – which basically means that the debt would consume the value of the estate. This is a perfect example of Sally needing someone like on us her side because if the estate is insolvent, there is a priority order in which creditors are to be paid. Those with higher priority get paid first (over those with lower priority). Like, if it’s truly insolvent, it’s possible that you pay one of the lower priority when you shouldn’t and then that’s not good at all because the “higher priority” ones are going to be grumpy with you, as Executor, and possibly even seek recourse. So, yeah – it’s really important to not start paying things when you don’t even know 1) how many debts are out there and 2) if there are enough assets to support all the debts.
So, here with Sally, we instructed her to not pay anything until we get a better grasp on all the debts. We finally reached that moment (of understanding what debts were “out there”) and we started guiding her on the priority order. So, I’m going to quickly spout off the priority order that we have here in Indiana (if you’re a new Legal Tea Listener, this podcast is based out of the State of Indiana – so when I have an opportunity to give Indiana-specific stuff, I do – and do know that, too, if you’re an out-of-state listener, your priority list/order may be different!).
Alright, so back to this priority list! First and foremost is the “costs and expenses of administration, EXCEPT funeral expenses and expenses incurred in the disposition of the decedent’s body.” After the costs and expenses of administration piece (which, by the way, is yes – a very objective thing); hence why an attorney is really important to this process. After costs and administration is reasonable funeral and body disposition expenses – but there are some limitations imposed if the person was on various governmental benefits. Next, in order of priority, are spousal elections and family allowances (a description of that is for an episode another day!); then, in the priority order is debts/taxes having preferences (think, like secured loans); then is medical expenses of the “last sickness of the decedent” and basically what is last is … everything else. (Think, like credit cards!)
So, as you may be able to see now, sometimes in estates, after someone has passed away, there is a bit of strategy dealing with debts and creditors – here, with Bob’s estate, we were thinking that may be a path we have to go down. So, like I said, we instructed her to not pay anything until we figured out everything debt-wise out there. Granted, that made some third parties, like the funeral home, a bit grumpy, but at the end of the day, Sally, the Executor, is our client and we have to make sure she is following the law – and guess what, funeral home, you’re not on top of the priority list!
Sally finally got to a point where she was able to get a handle on Bob’s assets, too, and we discovered that once she sold the house, there WOULD be an excess of assets over debts – so yay! We don’t have an insolvent estate. Nonetheless, while that is true, it still created massive stress on Sally because the debts and creditors were absolutely painful to deal with – they wanted paid (and would blow all of our phones up), but as soon as we were ready to get the house sold (which had liens on it due to some of the creditors), the 4 or 5 lienholders absolutely dragged their feet on telling the title company where to send the check to for their debt payment.
So, a little bit about how it works – when the sale happens, before the estate gets the money, the title company pays off the lienholders, then the remaining balance after the liens goes to the estate. So, the title company wasn’t able to really do much/move on the transaction because the lienholders wouldn’t call them back. I think they had to push closing 2 or 3 times, which again, caused Sally immense amount of stress since she kept having to tell the OTHER creditors (that were impatiently waiting to get paid AFTER the sale of the house) that they’d get paid … once the closing was over. Finally, and it took an absolutely inappropriate amount of time for those lienholders to get a hold of the title company, the transaction closed … the estate got the remaining funds after the liens were paid off, so Sally had the money to pay off the remaining debts. Through all of that, some of the creditors (that didn’t put a lien on Bob’s estate – but were still creditors nonetheless), put claims on the Court’s record, which is a normal and allowable thing to do.
Well, we basically had the exact experience … again. Sally paid off those debts/those creditors too, and annoyingly, the creditor has to file something with the Court to say “Hey, we’re paid – we’re good over here!” Well, they got paid and then conveniently took forever to file their release. I don’t know if they were like, “Well since you took forever to pay us … we’ll take forever to release the claim with the Court! Who knows. What I will have to say, though, is that had Bob done a Trust, a Trust, so long as the assets are appropriately titled in the Trust, avoids this probate court process. Therefore, while we would have still had to deal the liens on the house, the creditors filing claims on the estate wouldn’t have happened because the Court is not involved. So, had Bob done a Trust those years ago, he could have saved his estate legal fees, but also made Sally’s life less stressful dealing with all of his debts.
I think a big “take home” point from this episode is what really would have benefitted Sally was an organized list of assets, debts, etc. because it took Sally forever to uncover everything debt-wise and asset-wise that was “out there.” So, not only did she have to deal with all the craziness of the debts, before we even dealt with those, she had to figure out what was out there in terms of assets. He had a house, of course, but it was like trying to find a needle in a haystack what types of bank accounts Bob had, what types of investments, life insurance, etc. too. Granted, in Bob’s defense, Sally thinks that when he got sick, he sort of let everything fly out of control – he just like stopped paying things. I’ve definitely seen that happen before. But, even if he had created an organized list when he was feeling fine, that would have helped Sally and us IMMENSELY.
When you do your estate plan, you’ll probably get some sort of folder or binder that holds all your documents. You know, I always tell clients to use it as a safe space to hold important things – so, some clients will put together a listing of assets and debts; some clients will take pictures of items that they want to go to specific people; some clients will list out passwords and codes that are important (think, like email account passwords); etc. What Bob did not do was set Sally up for success and in fact, while he did not certainly do it intentionally, Bob actually set Sally up for failure – and it was because Sally had someone like me involved, that was the saving grace. If there’s anything I hear all the time from clients – it’s that they just want to make things easy on their family and their Executor. Well, learn from Bob – Bob didn’t make things easy AT ALL on Sally.
Alrighty … let’s wrap up this episode. Let’s shift to a sneak peak of next week, which we’re circling back to the “current trends” topic where we talk about things that are going on currently that impact my estate and elder law world – or maybe, things that I have stumbled upon on the news or social media that is relevant to this podcast. Well, next week, we’re going to talk about a guy named Mark Roesler, who represents, are you ready for this … dead celebrities. He, a publicist by trade, calls them “delebrities.” So, what he does is represent these dead celebrities in various matters and as Forbes says, “being dead doesn’t necessarily mean being unprofitable.” That’s true when you think about – they even say some dead celebrities (well, delebrities) are worth more now than when they were living. So, tune in for that next time! Until then, be well and talk soon!
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