How the Offset Works
Estate settlement sometimes involves a straightforward question: what happens when a beneficiary owes money to the person who passed away? This statute addresses it directly. If a successor has a noncontingent debt owed to the estate, the amount due is subtracted from their share of the inheritance.
The amount of a noncontingent indebtedness of a successor to the estate if due, or its present value if not due, shall be offset against the successor's interest, but the successor has the benefit of any defense which would be available to him in a direct proceeding for recovery of the debt.
A.R.S. § 14-3903This applies to debts that are certain and not dependent on some future event. If the debt is not yet due, the estate calculates its present value and applies the offset. The key protection for the beneficiary is that any defense they could raise in a regular lawsuit still applies. If they dispute the debt, the personal representative cannot simply deduct it without addressing that dispute.
Why This Matters for Families
Family loans are common. A parent might lend money to an adult child for a down payment or business start. The funds may have come from a bank account or from the estate's assets directly. If the parent passes away before the loan is repaid, this statute keeps the distribution fair for all beneficiaries.
At the same time, it protects the borrowing heir by preserving their right to contest whether the debt owed is valid or enforceable. The personal representative must still document the debt and allow the heir to respond before applying the offset.
For families settling an estate with outstanding loans, clear records matter. A written loan agreement or evidence of the original transfer from a bank account can prevent disputes during distribution.