Dear Quentin,
My father passed and I am the executor of his will.
We sold the house and dad’s assets with my brother’s help. Probate is done. We are ready to distribute the remainder of my father’s estate, but my brother owes the estate $10,000.
He feels that if he had paid this money back before dad passed, he would still get half back and, therefore, owes $5,000. (Dad also told me that he owed the money before he passed.)
My father’s will says his estate should be split 50/50. I feel my brother owes $10,000 to the estate. I do not want to rock the boat, and will do the right thing in order to keep peace.
What is the proper way to split $200,000 in cash when he owes the estate $10,000? For the record, my brother will abide by whatever I decide. Thank you in advance for your help.
Trying to do the Right & Proper Thing
Dear Right & Proper,
You are right to not look for trouble where there is none.
Given that there is no notarized loan agreement between your brother and your late father and there is money to be distributed, it would seem simpler and faster to have him sign a note now saying he owes the estate $10,000 and deduct the $5,000 from his eventual inheritance. Done and done. He could, after all, say that the loan was only due to be repaid when your father was alive or, indeed, say the loan was a gift. (The subject of countless episodes of Judge Judy.)
Your story is a cautionary tale of what could go wrong. “A hug or a handshake is not sufficient to bind someone to loan repayment. Loans and repayment obligations should be spelled out in writing and include repayment terms upon the testator’s death,” according to the Absolute Trust Counsel, a California law firm. “It is the responsibility of the executor to collect the balance due. An estate cannot be settled until all loans are collected and all debts settled or paid.”
“When an estate is insolvent, the collection of outstanding loans becomes especially important. Creditors want to be paid and will pursue all available resources to accomplish that,” the firm adds. “Many times, unpaid loans create dissension among heirs. In some cases, heirs who owe money still expect to receive an equal share of an estate.” There is a healthy cash sum from which to deduce your brother’s loan: $105,000 for you and $95,000 for him. It could get sticky otherwise.
Thankfully, your brother also wants to do what’s right and proper.
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