Dec42025
Probate Q&A Series

When we sell our parent’s house, does the due diligence or earnest deposit have to go into the trust or estate, or can we use it to secure a new place to live? – North Carolina

Short Answer

Under North Carolina law, any earnest money or due diligence fee paid for the sale of a deceased parent’s home is part of the sale transaction and, once released at closing or forfeited to the seller, becomes an asset that belongs to the estate or the trust, not to individual family members. A personal representative or trustee must treat those funds like other estate or trust assets: they are held, accounted for, and used according to the will, trust, and creditor rules, not for private, off-the-top living expenses. In some situations, housing costs for beneficiaries or heirs can be addressed, but that must be done through proper estate or trust administration, not by redirecting contract deposits.

Understanding the Problem

The narrow question is whether, in North Carolina probate and trust administration, a buyer’s due diligence fee or earnest money deposit on a deceased parent’s house can be diverted for temporary housing instead of being paid into the estate or trust. The caller identifies as an executor and expects a buyer to pay deposits as part of a standard residential sale. They also understand that sale proceeds are typically held while creditors have a period to make claims. The core concern is whether these deposits are different from the main sale proceeds and can be used immediately for personal housing needs instead of being handled as estate or trust property.

Apply the Law

Under North Carolina law, a personal representative (executor or administrator) or trustee has a fiduciary duty to collect, safeguard, and properly account for all assets arising from the sale of estate or trust real estate. When a sale of real property is authorized and the personal representative or trustee joins in the sale, all payments flowing from that contract, including earnest money and due diligence fees, are part of the overall sale consideration and must be handled as estate or trust funds. They go into an appropriate fiduciary or closing attorney trust account, and then into the estate or trust account, where they remain subject to creditor claims, administration expenses, and the distribution provisions of the will or trust.

Key Requirements

  • Fiduciary control of sale proceeds: The executor or trustee must ensure that all funds from the sale of the decedent’s real property, including deposits that become nonrefundable, are treated as estate or trust assets and not as personal funds of heirs or beneficiaries.
  • Compliance with creditor and administration rules: Sale proceeds, including released or forfeited deposits, must be available to pay valid debts, taxes, and administration expenses during the creditor claim period before being distributed for beneficiaries’ benefit.
  • Proper segregation and accounting: Funds must be held in appropriate estate or trust accounts (often after passing through a closing attorney’s trust account) and fully reported in the personal representative’s or trustee’s accountings, rather than being used directly for personal living expenses.

What the Statutes Say

Analysis

Apply the Rule to the Facts: Here, an executor expects a buyer to pay due diligence and earnest money for the sale of a deceased parent’s home. Under North Carolina practice, those deposits typically sit in an escrow or trust account until closing or default, then become part of the sale consideration paid to the seller. Once released, they are treated as estate or trust assets just like the rest of the closing proceeds, subject to creditor rules and accounting. They are not separate, personal funds that the executor or family members may divert directly for temporary housing unless the estate or trust later distributes money to them in a way that complies with the will or trust and creditor rules.

Process & Timing

  1. Who files: The executor or administrator (or, if applicable, the trustee) oversees the sale. Where: The deed and closing documents are typically handled through a North Carolina closing attorney and recorded with the Register of Deeds in the county where the property is located, and the estate accountings are filed with the Clerk of Superior Court, Estates Division. What: Standard purchase contract, closing statement, and, if needed, petitions or consents for authority to sell. When: The sale can occur during the administration, but assets, including released deposits, must remain available through the creditor claim period.
  2. After closing, the closing attorney disburses funds, sending the seller’s net proceeds (including any released or forfeited deposits) to the estate or trust account. The personal representative or trustee then uses those funds first for approved estate or trust purposes, such as administration expenses and valid claims, before making distributions authorized by the will or trust.
  3. At the end of administration, the personal representative or trustee files a final account with the Clerk of Superior Court showing all receipts (including sale deposits and proceeds), disbursements, and distributions, and then closes the estate or, for a trust, retains or distributes remaining funds in line with the trust terms.

Exceptions & Pitfalls

  • If the house is owned by a living trust rather than the estate, the trustee may have more flexibility, but still must treat deposits and sale proceeds as trust assets and follow the trust’s distribution and expense rules.
  • Using deposits or proceeds directly for personal housing before addressing taxes, debts, and administration expenses can expose the executor or trustee to surcharge, removal, or personal liability to creditors or other beneficiaries.
  • Failing to route deposits and proceeds through appropriate escrow and estate or trust accounts can create accounting problems with the Clerk of Superior Court and lead to delays in closing the estate or disputes among interested parties.

Conclusion

Under North Carolina probate law, earnest money and due diligence deposits tied to the sale of a deceased parent’s house are part of the overall sale consideration and must be handled as estate or trust assets. The personal representative or trustee must collect, safeguard, and account for these funds, and keep them available for creditor claims, expenses, and proper distributions. The correct next step is to ensure the deposits flow through escrow to the estate or trust account and then address housing needs, if appropriate, through authorized distributions rather than diverting deposits directly.

Talk to a Probate Attorney

If you’re dealing with questions about using sale deposits or proceeds from a deceased family member’s home under North Carolina probate law, our firm has experienced attorneys who can help you understand your options and timelines. 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.