Economic recession affects probate, just as much as wages, gas, and your grocery bill. We’ll share a few ways we’ve seen how it’s been impacting probates.
Takes longer to collect probate assets
First, there are major delays in collecting assets. Banks, brokerages, unclaimed funds, etc. are taking way longer than usual to process claims and release funds. They are asking for more documents and are stricter in their requirements. In the past, these financial institutions let some things slide, but now they want all the T’s crossed and I’s dotted. They may just be rigorous in their requirements now. But another interpretation is that they want to keep the money in their accounts as long as possible.
This results in delays for the executor and heirs. The key takeaway is to start the process now!
Creditors will not settle
Historically, regarding an estate debt (exs. credit card or medical bills), creditors were willing to negotiate the bill down. It used to just take a phone call to get even 50% off easily.
Now creditors want full payment. Some will even wait as long as it takes or even sue the estate. The notion of debts getting discharged or reduced isn’t happening. The takeaway: don’t count on getting the debt reduced to increase the amount the heirs will receive. Just assume that debts will be paid in full.
This seems odd, considering we’ve been through recessions before. Even then, creditors were willing to settle estate debts to guarantee cash in hand. It is unclear what makes creditors so aggressive now.
Heirs need cash
Heirs need and want their cash as soon as possible. If you’ve listened to any of our prior podcasts, you know that paying heirs quickly is unrealistic. Estates take a long time to settle, but there are some solutions to make payments to the heirs sooner rather than later.
One way is to pay reimbursements immediately. Sometimes heirs front money to pay for court filing fees, house clean-out, or the attorney’s retainer. Normally, when the matter isn’t urgent, the heirs get reimbursed at the end of the probate process. Why have multiple rounds of checks mailed out if it’s not urgent? But, if you are an heir who has fronted money, just ask the executor for it. The executor should have no problem repaying you.
We are also seeing heirs and executors making concessions during the accounting phase to get it done faster. In the past, parties might dispute how much money was spent on certain tasks (house clean-outs, for example). Now all sides just want to get the accounting done.
Another option is to prepare an intermediate accounting. Instead of waiting until the end for the full accounting to distribute the inheritance, the executor can do a partial accounting to pay out a portion of the shares to the heirs. The problem is that the same level of work is required to produce an intermediate accounting as it is for a full accounting. Basically, the heirs pay for the accounting to be done twice, whether by the executor or an accountant. We may start seeing a trend where the heirs don’t mind paying twice just so they can get some cash now.
I hesitate to even mention the last option, since it is a bad idea. Inheritance funding companies can give cash to the heirs in exchange for a legal right to their share of the estate. For example, if your inheritance share is $50,000, the inheritance funding company will give you less than $20,000 now and they’ll keep the rest when the accounting is done. These are horrible terms, so try to avoid this option!
If you want to learn more about probate, check out my book on Amazon, “How Probate Works.” If you fill out the form below, we will give you a free chapter. As always, send us comments or questions by email. We will do our best to answer them either directly or as the subject of a podcast.