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Loans to Beneficiaries and Advancements

6a01901e1aef61970b01a3fd395a90970b-320wiCoping with the loss of a loved one is difficult.  It becomes even more challenging when the family does not understand what will happen to the decedent’s estate.  When a person dies without a will, their estate passes by Arizona’s intestate laws.  Our previous article on intestate succession, discusses the basics of intestate succession and heirs to an intestate estate.  But, how are debts of heirs and advancements of property to heirs treated in an intestate estate?  If a person dies with a will, are advancements treated the same?

DEBTS

Resolution of debts owed by an heir to the person who died are addressed in ARS § 14-2110. When a debt is owed to the decedent at the time of his or her death, the debt does not affect the intestate share of any person except the debtor.  Only the debtor beneficiary is responsible for repaying the debt with a portion of his or her share of the intestate estate.  If the debtor heir dies before the decedent, the debt is not taken into consideration in the estate shares of the debtor’s descendants.  Therefore, a debt owed to the decedent only affects the debtor heir.

For example, if the person who died without a will had three heirs, the estate would be divided into thirds.  If the entire estate was $80,000 in cash and a $10,000 loan due to the decedent by one of the heirs (“Heir A”), for a total estate of $90,000, each heir would be entitled to $30,000 (one-third of the entire estate).  However, since Heir A owed the person who died $10,000, Heir A would receive $20,000 in cash and the $10,000 loan, whereas Heirs B and C would each simply receive $30,000 in cash.

Reconciling debts may be more involved, depending upon whether the debt was confirmed in writing, when the debt was incurred, whether interest was charged and other factors.

ADVANCEMENTS

Advancements are governed by ARS § 14-2109.

Obviously, a person may make gifts to his family during his lifetime.  When someone dies without a will, prior gifts may be considered an advancement against the heir’s inheritance.  Advancements only count against an heir’s intestate share of the person’s estate if the decedent declared it so in writing at the time of the gift or the heir acknowledges the advancement in writing.  Otherwise, gifts made while the decedent was living are not taken into consideration when dividing and distributing the decedent’s intestate estate.  If the receiving heir passes away before the decedent, the advanced property is not taken into account during the division of the decedent’s intestate estate, unless the decedent’s contemporaneous writing states otherwise.

If a gift is an advancement and is considered when dividing the estate, the next issue involves when and how to value the advancement if it was anything other than money.  By statute, the property is valued when the heir received possession of the property or the date of death of the giver, whichever first occurs.

For example, what if the heir received a gift of a car?  If the giver stated in writing at the time of the gift of the car that it was an advancement against the heir’s inheritance or the heir acknowledged in writing that it was an advancement, then the value of the car would be considered in determining that heir’s share of the intestate estate.  And, the value of the car would be determined at the time that the heir received possession of the car, unless the decedent passes away first, then the property is valued at the time of the decedent’s death.

If you have any questions about Arizona intestate or probate laws, please contact our office.  We would be happy to assist you in learning more about Arizona estate administration.

Photo Credit: Deseret News