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Wills & Trusts – Estate Debt – Testator’s Promissory Note

The Supreme Court of Virginia says a trial court erred in ruling that a decedent’s estate was not liable for a debt evidenced by a promissory note executed solely by the decedent, and secured by a deed of trust on real estate held by the decedent and decedent’s surviving spouse as tenants by the entirety with right of survivorship.

In 2002, Cornelius Dolby acquired title in his name alone, to a house (the Property) in McLean, executing a promissory note in his name alone, secured by a deed of trust naming the Property. In 2005, Dolby refinanced and satisfied the original note and executed a new promissory note secured by a new deed of trust with the property as security. Dolby was sole obligor on the new 2005 note. In early 2006, Dolby married Christine Dolby (Mrs. Dolby). On Aug. 28, 2006, Dolby executed a deed transferring the Property to himself and Mrs. Dolby as T by E with right of survivorship. Dolby remained sole obligor on the note after this transfer of ownership. Mrs. Dolby was not added as a joint obligor on the note, nor did she assume the obligation.

On Sept. 16, 2006, Dolby executed a will and an amended trust. Article 1.3 of the will provides for payment of “all legally enforceable debts.” Dolby died on Dec. 25, 2006, and Mrs. Dolby received title to the Property in fee simple absolute by operation of law. Mrs. Dolby, Kent Dolby and Kirkmon Dolby were appointed co-executors pursuant to the will. The executors sought guidance on who was responsible for the mortgage debt. The Dolby children requested the mortgage debt not be paid from the estate, but pass with the Property as a lien on the Property. After a bench trial, the circuit court ruled the mortgage debt was not an obligation of the estate and the Property passed subject to the debt.

The issue whether Dolby’s estate is responsible for the debt is resolved by answering two questions: whether Dolby had a personal obligation to pay the debt and whether the mortgage debt is secured by real property owned by Dolby upon his death. The answer to the first question is that Dolby was personally and solely liable for the note he signed. Mrs. Dolby was not added as a joint obligor on the note, nor did she assume the obligation. Although Dolby and Mrs. Dolby owned the Property T by E with survivorship right, the mortgage debt on the Property remained Dolby’s personal obligation at the time of his death. The mortgage debt is a debt of the estate. Also, Dolby’s will directs the executors to pay all the estate’s “legally enforceable debts.”

The answer to the second question is no. Article 1.3 provides that the executors are not required to pay prior to maturity any debt secured by mortgage on real property that is owned by Dolby upon his death. This exception does not apply to the Property because Dolby’s ownership interest did not survive his death. Rather, Dolby and Mrs. Dolby owned the Property as tenants by the entirety with right of survivorship. Therefore, the Property passed to Mrs. Dolby by operation of law and is not part of the Dolby estate. The exception exempting the executors from paying a debt prior to its maturity does not apply, and the Dolby estate must, according to the will, pay the mortgage debt. The circuit court erred in concluding the exception in Article 1.3 for mortgages on real property applied.

Clearly, a testator cannot lawfully direct the executor of his or her estate not to pay lawfully enforceable debts based upon the testator’s sole and personal obligation, or to charge such debts against property that passes outside the testator’s estate.

Judgment reversed and final judgment for Christine Dolby that the mortgage debt is an obligation of and shall be paid from the estate of Cornelius.

Reversed and final judgment.

Dolby v. Dolby (Millette, J.) No. 091023, June 10, 2010; Fairfax Cir.Ct. (Smith) John F. Boland, Robert J. Cunningham Jr., Stephen D. Charnoff for appellant; Ulka P. Shriver, Kimberley A. Murphy for appellees Catherine Dolby et al.; No brief filed by appellees Stacey C .Coppola et al. VLW 010-6-065, 7 pp.

VLW 010-6-065

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