Conversion of an Exempt Asset

/ October 27, 2015

Hands and money in envelope - iStockAs I wrote in my past article, Hands Off, Creditors!, when someone passes away intestate in Minnesota there are several assets that pass to a surviving spouse and/or children free from claims and creditors. As a reminder, those assets are:

  1. The homestead (under Minn. Stat. §524.2-402);
  2. Exempt property, which includes one vehicle (regardless of value) and property not exceeding $10,000 in value (under Minn. Stat. §524.2-403); and
  3. A family allowance, which is not to exceed $1500 per month for 18 months if the estate is solvent and 12 months if the estate is insolvent (under Minn. Stat. §524.2-404).

It is important to note that if an asset is deemed an exempt asset under any of the above provisions, that asset will remain an exempt asset even if it is liquidated. For example, if the homestead in the estate is an exempt asset and it is sold, the proceeds from that sale will also remain exempt property (excluding any claims secured by the property, e.g. a mortgage). Therefore, those home sale proceeds should not be combined with the other assets of the estate and used to pay off any of the estate’s debt or valid claims. Just because the exempt asset has been liquidated does not convert it to non-exempt status.

As a personal representative of an estate, it is crucial that you not mistakenly use the funds from an exempt asset to pay certain claims or debts. Doing so could cause you to be personally responsible for repaying those funds to the estate or the appropriate beneficiaries.

Should you have any questions about the proper way to administer an estate, contact an attorney for assistance.