The Connecticut Estate Planning Blog

Dying With Debt, But Without a Will

I recently received an e-mail questioning what would happen if someone died without a will but plent of debt.  Could the creditors go after the surviving children?

To greatly summarize what would happen under Connecticut law, if someone dies without a will then an estate would still be opened in the local probate court.  If the debt is large enough then the creditors might take the time and effort to initiate the probate process if the family does not step up and do it. 

The court would then appoint an “administrator” (this person would be called the “executor” if there was a will) and that person’s first job would be to ascertain the legitimate, outstanding debts of the decedent and pay them off with estate assets, if possible.  Once all of the legitimate creditors are made whole then the administrator would distribute any remaining funds to the next of kin.  “Next of kin” would be the surviving spouse, if none then the children, if none then siblings, and so on.  All of these steps would be taken under the supervision of the probate court.

So, in short, the creditors couldn’t directly go after the kids since the kids have no legal responsibility for the parents’ debts (unless they agreed to be responsible in writing, for some reason).  But the creditors could go after the estate which would reduce what the kids would have received from the estate otherwise.

How Much Does Connecticut Probate Cost?

One of the most common questions my clients ask, particularly when we have a discussion about revocable living trusts, is how much Probate Court is going to cost upon death.  The Connecticut Probate Courts apply a formula to your gross taxable estate to determine what the Court is owed, and they will not issue all the decrees and other documents you will need to close out the estate until the Court's fee is actually paid. 

Unfortunately, it's not a flat percentage.  Fortunately, most of my clients tell me that the fee turns out to be much less than they had anticipated.  Here is the calculation you need to make:  it's $150 for the first $10,000 of the gross taxable estate, plus another .35% of anything between $10,000 and $500,000, then an additional $.25% of anything over $500,000.  For example, if your gross taxable estate is $500,000, then the bill for the Probate Court will be $1,865.

But don't forget that your gross taxable estate includes all life insurance proceeds and the equity in your real estate.  Most clients are not aware of the fact that life insurance is part of the calculation and they tend to forget about the home equity, so most clients have estates that are larger than they thought.

One other thing that is worth mentioning here has to do with revocable living trusts.  Living trusts are very good at avoiding the probate process, but they will not allow you to avoid probate costs.  In other words, if you have a living trust and it is fully funded, you will avoid the hassle of having to prepare and file several documents with the Court, you will not have to attend Court hearings and you shouldn't have to hire an attorney to guide you through the process.  But before the Court will issue all the documents that you will need (for example, a document to formally remove a decedent's name from a deed on the land records), it's going to send you a bill based on the calculation in the previous paragraph, even if you did not go through the formal, full-blown probate process.  This is probably the singlemost common misunderstanding when clients create living trusts, so you should take this fact into consideration while you are trying to decide between making a Will or a Living Trust the centerpiece of your estate plan.

Posts on revocable living trusts and the estate tax (a separate issue from probate costs) will appear here in the future.