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Debt Forgiveness and Creditor Claims

Written by on Mar 19, 2012| Posted in: Estate Litigation

Is a decedent permitted to forgive debt owed to him when his estate is insolvent to pay the debts and costs of administration? 

According to Florida’s Fifth District Court of Appeals, the answer is “no.”

In Lauritsen v. Wallace, 67 So.3d 285 (Fla. 5th DCA 2011), the decedent father had included a provision in his Last Will & Testament forgiving his son’s debt to the father, which was secured by a promissory note.  The decedent’s estate was insolvent so the Personal Representative asked that the note be included as an estate asset.  The trial court held that the debt was forgiven at the instant the decedent died so it could not be considered an asset.  The appellate court disagreed.

This was a case of first impression in Florida.  The Court noted that “there are no Florida cases that address the question of whether the release and forgiveness of an obligation in a will operates to defeat the payment of obligations and expenses of a decedent’s estate.  However, other jurisdictions have considered the question, and have uniformly concluded that forgiveness of a debt in a will occurs only after creditors and expenses are paid.”

Further, the Court found that “several sections of the probate code support the conclusion that a devise cannot be elevated over administrative expenses and the rights of creditors” and cites Fla.Stat. 731.201(10), Fla.Stat. 733.805(1), and Fla. Stat. 733.707(1).

Ultimately, the Fifth District Court of Appeals held that “a decedent can release a debt owed to the decedent through a testamentary devise only to the extent that the decedent’s estate is solvent to pay all debts and administrative costs of the estate.”

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