my mother recently passed away. we have been advised by our elder care attorney not to pay any of her current liabilites (medical bills, utilities on her home, maintenance on her home etc...) until after her estate is settled. this could take 1-2 years. wont her estate incur interest/penalties on these liabilites?
please advise.
Listen to your lawyer and and save money. It sounds like there might not be enough assets in your mother's estate to pay all the bills in full. This means her estate is insolvent. The rules about paying a deceased person's debts are designed to protect the heirs. Follow the rules to protect yourselves. Most people find that settling an estate and facing unpaid debt are very anxiety provoking, but this is a case where taking a deep breath and following the rules can be worth the stress.
Rule #1. You are not required to pay debts or expenses from assets which pass outside the Will, like life insurance, joint property owned with rights of survivorship, accounts payable to designated beneficiaries or trusts created for your mother by another person. You are required to pay debts from assets passing under the Will or assets passing under a trust created by your mother for her own benefit, revocable or irrevocable. I do not know which category your mother's house falls into for this purpose. If it passes under her Will and she does not have enough other assets to pay the creditors, you may have to sell it to raise the necessary cash. It can be sold to either to a stranger or to a family member, but it will need to be sold at fair market value.
Rule # 2. In New York, creditors have seven months from the date her Executor or Administrator is appointed to make their claims. They can present claims by simply sending a bill during this time period or by making a formal claim filed with the Surrogate's Court.
Rule #3. There are certain bills that take priority. For example, income taxes due on your mother's final income tax returns, state and federal, are priority claims. Funeral expenses are another priority claim. Finally, some administration expenses are a priority claim. The debts will be paid from the remaining assets.
To play by the rules, pay no expenses from the Estate accounts until the creditor claim period is over. The Executor or the attorney should write to all known creditors during the claim period to advise them that your mother is deceased, that her estate may be insolvent and that the estate cannot pay bills until you know all of the debts and expenses.
As a practical matter, you will still need to maintain your mother's home while you are settling the estate to protect the value of the house. You should not pay these expenses from the estate account. However, the heirs can set up a separate account in their names and contribute personal funds to pay these expenses. You can use these personal funds to pay for all future expenses to maintain the house. Technically, you can make the utitlities wait for any charges for services outstanding on your mother's death. However, you will probably want to use personal funds to pay outstanding bills for necessary utilities to continue receiving services for the property. For example, you will want to keep electrical service so you need to pay the electric company. If your mother had gas heat, you may need to pay the gas company as well. Telephone and cable service are optional and you can make these companies wait along with the rest of the creditors.
By the time the creditor claim period is over, you will not only know your mother's debts, you will have a very good idea of what the administration expenses will be. You can estimate what you can offer the creditors. Offer the same percentage to each of the creditors. Usually creditors will take what they can get and run. If the creditors are not happy, you can withdraw the offers and tell them to wait another year or two until you present a final accounting. Not only will they have to wait, all of the legal and accounting expenses will be paid before the creditors get their money. As you can see, the creditors have an incentive to settle on a favorable basis.
Since you are being represented by an attorney, I would suggest that you follow his or her advice. Your attorney is much more familiar with the facts and circumstances of your case than we are.
