When a person dies, the debts they have incurred don’t just disappear. Instead, they’re handled by the person’s estate. If the estate isn’t insolvent, the debts will typically be paid by assets within the estate.
Paying a decedent’s debts is a part of the probate process. The person who oversees the estate’s administration will have to sort through creditor claims to determine how they should be handled. Once that’s done, beneficiaries will receive what they’re due based on the terms of the estate plan or state intestacy laws, if there is no estate planning documentation that can be referenced.
Loved ones may not be liable
One common concern in these cases is whether loved ones need to pay off the deceased’s debts. Typically, they don’t have to. The exception to this is if they’re a joint account holder or a co-signer. Some unscrupulous debt collectors may try to trick or force the loved ones of the decedent to pay for the debts. If any loved one is contacted about a debt for the decedent, they shouldn’t provide any personal information and should direct the creditor to the estate administrator.
Debts in probate
Debts that are submitted to the estate are paid in a specific manner. The first debts that come out are those that are secured. These include things like the mortgage on a home because the asset is tied to the debt.
Unsecured debts typically come last in the probate process. This includes things like creditor card or medical bills. It’s possible that some creditors won’t get paid. If the estate exhausts all its available assets, anything that’s left will likely remain unpaid.
Certain assets bypass probate
Certain assets, such as retirement accounts that have named beneficiaries, bank accounts with a payable-on-death designation and life insurance policies, transfer directly to the beneficiary. Those assets typically don’t go through probate, so the funds can’t be claimed by the decedent’s creditors. Certain trusts can also follow that same concept.
Understanding the debt payment process can be challenging for those who are administering an estate. It may behoove individuals who are handling this duty to consult a legal representative who can assist them with taking care of matters in accordance with appliable laws.