Avoiding Probate on Promissory Notes and Mortgages: It’s More Important Than You Might Think

By | 2019-11-08T15:36:59-06:00 November 8th, 2019|0 Comments

meeting with my Louisiana Estate Planning clients, I sometimes encounter clients who have lent money to family, friends, and others.  A legal agreement, usually a mortgage or promissory note, evidences the financial obligation for the loan recipient. In the mortgage or note, the debtor promises to pay back the loan with interest over some predetermined time period.

This works well when payments to service these loans continue and when the creditor is still alive. But what happens when the creditor dies? Often, the debtor mistakenly believes that their legal obligation is over. Clearly this is not the case. After the death of the lender, the outstanding balance is payable to the lender’s estate. The courts require a legal proceeding known as a succession to settle claims when debtors owe a balance to your estate. In the event of default, the court must appoint an executor to bring claims against the debtor. This will certainly delay those collection efforts. Many times the succession cannot conclude until the collection proceeding is complete. This could add months or years to the settlement process, not to mention additional expense.

Can you prevent this problem?

The answer is yes. I preach a lot about the value of avoiding the Louisiana succession with Living Trusts. Avoiding a court process after a loved one dies can provide many benefits. It can save thousands in court costs and attorney’s fees, keep the courts out of the estate settlement proceeding, and significantly minimize the time it takes to settle an estate.

By assigning notes and mortgages to your living trust, your family avoids probate on collecting those debts. The person you designate to control the trust at your passing (the Successor Trustee) has the right to collect on those amounts owed. They can also pursue claims in the event of default without the additional step of becoming a court-appointed executor. Additionally, the collection proceedings don’t become intertwined with the succession proceeding. As a result, the other assets in your estate can settle without waiting for a final resolution on the collection of the note or mortgage.

Bottom line, by avoiding probate on promissory notes and mortgages, your heirs gain the ability to access more of your assets faster. If this sounds attractive to you call Legacy Law Center at (504) 274-1980 in Metairie, New Orleans, and surrounding areas or call (985) 246-3020 in Mandeville, Covington, Slidell, Houma, and Thibodaux.