Dec252025
Probate Q&A Series

Can I receive closing funds in my firm’s trust account and still split net proceeds according to our settlement agreement? – North Carolina

Short Answer

Yes—under North Carolina law, closing funds can be received into a law firm trust/escrow account and then disbursed according to a written settlement/closing statement, including an equal split of net proceeds. The main requirements are that the personal representative (or the correct title holder) has authority to complete the sale, all required closing payoffs are handled first, and any disputed or unclear deductions are kept in trust (or otherwise escrowed) until resolved. The personal representative should also make sure the estate accounting properly shows the receipt and disbursements.

Understanding the Problem

In North Carolina probate administration, can a closing agent deliver sale proceeds payable to the estate, have those funds deposited into a law firm trust account, and still distribute the net proceeds exactly as required by a settlement agreement that calls for an equal split between two co-owners? The decision point is whether the trust-account hold and later disbursement can coexist with (1) paying an estate creditor at closing and (2) deducting one co-owner’s current property taxes from that person’s share before the final split.

Apply the Law

In North Carolina, real estate closing funds handled by a settlement agent are trust or escrow funds, and the settlement agent must disburse those funds to the parties and payees identified in the settlement agreement (often reflected in a closing disclosure/settlement statement). In a probate context, the personal representative has a duty to settle the estate within a reasonable time and to preserve and properly account for estate assets, including sale proceeds. When sale proceeds must be protected pending payment of claims or clarification of who is entitled to what, North Carolina practice commonly uses an escrow arrangement so that proceeds can be held and then distributed once the amounts and recipients are confirmed.

Key Requirements

  • Authority to sell and distribute: The personal representative must have the right authority (from the will or the Clerk of Superior Court) to participate in the sale and to direct distribution of sale proceeds that are payable to the estate.
  • Follow the settlement/closing statement and lien payoffs: Funds should be disbursed first to required closing payoffs (such as liens and agreed closing costs) and to any estate claim that is being paid through the closing, before calculating “net proceeds” to split.
  • Protect disputed or conditional amounts: If a deduction (like one co-owner’s taxes) is not clearly authorized, or if competing claims exist, the safest approach is to keep the disputed amount in trust (or escrow) until the parties agree in writing or the Clerk/court resolves it.

What the Statutes Say

Analysis

Apply the Rule to the Facts: The closing funds will be made payable to the estate and held in trust pending distribution, which fits the North Carolina framework that closing funds are trust/escrow funds and should be disbursed per an approved settlement agreement/closing statement. The creditor claim that “must be paid at closing” should appear as a payoff on the settlement statement and be paid before any “net proceeds” split is calculated. If the settlement agreement clearly authorizes deducting one heir’s current property taxes from that heir’s share, that deduction can be shown on the settlement statement and then the remaining net can be split equally. If the tax deduction is not clearly authorized or is disputed, the safer handling is to hold that portion in trust while distributing the undisputed remainder.

Process & Timing

  1. Who files: No separate “filing” is required just to receive proceeds into trust; the settlement agent and the personal representative coordinate the closing package. Where: Closing funds are deposited into the firm’s North Carolina trust/escrow account used for closings. What: A written settlement/closing statement that lists (i) closing costs, (ii) payoff of liens/claims being paid at closing, and (iii) the amount of net proceeds and the payees for distribution. When: Disbursements generally occur after the deed and required instruments are recorded and after the deposit is “collected funds,” with limited statutory exceptions.
  2. Escrow/holdback step: If any portion is conditional (for example, the property-tax deduction from one co-owner’s share needs documentation or signatures), that amount can be held in trust under a written escrow or holdback agreement that states who gets the funds and what proof triggers release.
  3. Estate accounting step: The personal representative should make sure the estate accountings to the Clerk of Superior Court reflect the receipt of the sale proceeds and each disbursement (including the creditor payment and distributions), typically on the next annual or final account unless the Clerk orders otherwise.

Exceptions & Pitfalls

  • Unclear authority to sell or sign: If the personal representative is required to join in the deed (or needed court authority was not obtained), the closing and distribution plan can break down. When probate real estate is being sold to address estate obligations, the Clerk of Superior Court may need to authorize the sale through the required procedure if the will does not grant adequate power.
  • Confusing “estate proceeds” with “co-owner proceeds”: When co-owners exist, the settlement statement should clearly show what portion belongs to the estate versus what portion belongs to the other owner, and who is entitled to each disbursement.
  • Paying a creditor without clear payoff instructions: A creditor claim should be paid only in the amount and manner authorized (for example, per a payoff letter or written agreement) and reflected on the settlement statement to avoid later accounting disputes.
  • Deducting one person’s taxes without written authority: A tax “chargeback” against only one co-owner should be supported by the settlement agreement or a separate signed direction. If not, that deduction can trigger a dispute; holding that portion in escrow is usually safer than unilateral deduction.
  • Improper early disbursement: Disbursing before recording and/or before funds are “collected” can violate the closing-funds rules and create risk if a deposit fails.

Conclusion

In North Carolina, a firm can receive closing funds into its trust/escrow account and then split the net sale proceeds according to a settlement agreement, as long as the personal representative has proper authority, required payoffs and closing items are handled first, and any disputed or conditional deductions are held back until resolved. The practical next step is to prepare a written settlement/closing statement (and, if needed, an escrow/holdback agreement) that lists the creditor payoff, the tax deduction, and the final equal split before disbursing funds.

Talk to a Probate Attorney

If closing proceeds need to be held in trust and then distributed under a probate settlement agreement (especially with creditor payoffs and unequal deductions), experienced attorneys can help set up the closing statement and escrow terms so the distribution matches North Carolina probate requirements. Call us today at (919) 341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.

Category: Probate Q&A Series

Author: jpierce

Attorney Jared Pierce is the founder of Pierce Law Group in Raleigh, North Carolina, a firm he established with a dedicated focus on probate administration and estate planning across North Carolina. Born and raised in the Republic of South Africa, Jared moved to Durham with his family in 2001, bringing with him a rich cultural background and a distinctive accent that often serves as a conversation starter.