If a party owes money to an estate, can the executor and/or beneficiaries write off the debt or make an agreement for a portion of the debt?

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If a party owes money to an estate, can the executor and/or beneficiaries write off the debt or make an agreement for a portion of the debt?

I want to find out if possible in order to avoid legal preceedings because of costs and reprucussions to the owing party (i.e. bankrupcy, legal costs and dissolving a family).

Asked on October 8, 2012 under Estate Planning, Kentucky

Answers:

B.H.F., Member, Texas State Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

The answer to your question will depend on the financial health of the estate and the nature of the estate.  Estates don't "write off debts", but executors can, with the consent of all of the beneficiaries, agree to forgive a debt.  It's a similar concept to writing off a debt, but the legal effect is different.  If the estate consisted of a partnership or business and the debt was owed to that business, then the business could "write off the debt."  If you are a beneficiary, everyone could also agree that your gift or inheritance be forfeited in exchange for forgiveness of the debt.

Before dispursing funds, an executor has a duty to make sure that the estate has enough funds to cover any bills, expenses, or tax obligations of the estate.  If the estate if financially healthy, and the beneficiaries are okay with the forgiveness, then he can let the obligation go.  However, if the estate owes money to a third party creditor, then he has a duty to try and collect the funds from you in order to pay on those accounts. 

You can broach the idea with the executor, just know that there are some factors which could affect their ability to help you with this obligation.


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