Short Answer

In North Carolina, a recorded home‑equity line of credit (HELOC) must be paid first from the property’s sale proceeds to deliver clear title. If the home was in a revocable trust at your parent’s death, trust assets remain available to your parent’s creditors; hold back a reserve until the creditor-claim period is managed and pay valid claims by statutory priority. As trustee, act prudently and impartially, and avoid distributions that could jeopardize SSI/Medicaid until you have a benefits‑safe plan.

Understanding the Problem

In North Carolina, you (as trustee) are selling a trust‑owned home. You ask: how do I clear a large HELOC and handle creditor claims discovered after closing, while protecting your SSI/Medicaid and dealing with a new city easement? One key fact: you are both trustee and a beneficiary alongside a sibling who may be hard to manage.

Apply the Law

Core rules: a recorded deed of trust (HELOC) is a secured lien that must be paid at closing in order of lien priority, before any net proceeds are available. Property in a revocable trust at the settlor’s death remains subject to the settlor’s creditors; trustees typically coordinate with an estate representative to run the statutory creditor-notice process so late claims are barred and valid claims are paid by priority before distributing. Trustees must act in good faith, with prudence and impartiality, and may seek court instructions on tough questions.

Key Requirements

• Pay secured liens first: Satisfy the HELOC (and any senior liens) from closing proceeds so you can convey clear title.
• Trust assets remain available to settlor’s creditors: If your parent’s trust was revocable at death, trust property can be used to pay your parent’s valid debts/claims.
• Use the creditor-claim process: Open an estate and publish/mail notice so claims are presented within the statutory window; then pay allowed claims by statutory priority.
• Reserve/escrow funds: Hold a reasonable reserve from sale proceeds until the claim period ends and known claims are resolved.
• Trustee duties/control: Act prudently and impartially; document decisions; avoid self‑dealing; seek court instructions if competing interests or benefit‑eligibility issues arise.
• Easement/condemnation proceeds: Any compensation for the city’s easement is applied to liens first; the balance is administered like other trust assets.
• Protect benefits: Avoid direct cash distributions to yourself while on SSI/Medicaid; consider court‑approved adjustments or structured distributions consistent with the trust and law.

What the Statutes Say

• North Carolina Gen. Stat. § 36C‑5‑505 (Revocable trust subject to creditor claims) – Trust assets of a revocable trust remain available to the settlor’s creditors at and after death.
• North Carolina Gen. Stat. § 28A‑14‑1 (Notice to creditors) – Personal representative publishes and mails notice; creditors must present claims within set periods.
• North Carolina Gen. Stat. § 28A‑19‑6 (Order of payment of claims) – Establishes the priority for paying allowed claims.
• North Carolina Gen. Stat. § 36C‑2‑203 (Clerk’s jurisdiction over trust matters) – Describes when the Clerk of Superior Court can hear internal trust proceedings.

Analysis

Apply the Rule to the Facts: Your settlement agent should pay the HELOC from the sale proceeds at closing, ahead of any distributions. Because your parent’s revocable trust assets remain reachable by your parent’s creditors, hold a reserve and coordinate an estate filing to publish/mail creditor notice; then pay allowed claims in the statutory order. Do not distribute to yourself until you confirm the claim window has run and you have a benefits‑safe plan; document each step and treat your sibling impartially.

Process & Timing

1. Who files: Trustee; and, to manage creditor claims, a personal representative for the decedent. Where: Clerk of Superior Court in the county of domicile for opening the estate; closing occurs with a settlement agent and the Register of Deeds handles lien cancellations. What: Estate opening uses AOC “Application for Probate and Letters” (AOC‑E‑201) or “Application for Letters of Administration” (AOC‑E‑202). When: Publish notice to creditors promptly; creditors generally have at least three months after first publication to file, and known creditors have 90 days after mailing.
2. At closing, obtain written payoff(s) and satisfy the HELOC and other recorded liens in priority order. Place a negotiated escrow/holdback for potential after‑discovered claims and the city’s easement compensation, if pending.
3. After the claim window closes, pay allowed claims by statutory priority from the reserve. Then evaluate distributions in a way that preserves SSI/Medicaid (for example, consider seeking court instructions or modification if the trust terms and circumstances warrant). Keep detailed records and provide beneficiary updates.

Exceptions & Pitfalls

• Distributing too early: Paying beneficiaries before the claim window ends risks personal liability and clawback; use an escrow/holdback.
• Known creditor notice: If the decedent had known creditors (including possible Medicaid estate recovery), failure to mail notice can keep claims alive.
• Easement impacts: A new city easement may lower value or delay closing; disclose it, coordinate any compensation, and apply proceeds to liens first.
• Trustee conflicts: As a beneficiary‑trustee, avoid self‑dealing. Consider independent approvals or court instructions before paying yourself.
• SSI/Medicaid: Cash distributions can end benefits. Align distributions with the trust terms and consider court‑approved adjustments before paying out.
• Sibling tensions: Apply the duty of impartiality; document decisions; if disputes escalate, seek guidance in a trust proceeding before the Clerk.

Talk to a Probate Attorney

If you’re handling a trust sale with liens and creditor claims while trying to preserve SSI/Medicaid, our firm has experienced attorneys who can help you understand your options and timelines. Call us today to discuss your situation.

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.