Who is Responsible for My Deceased Family Member’s Debts?
I am frequently asked by individuals whose loved one has passed away, whether the heirs will be responsible for paying the debts if the deceased’s estate does not have the means to pay them. There is a prevailing myth that creditors may seek payment from the people left behind. However, contrary to popular belief, heirs are not generally responsible for settling the debts of a deceased family member (bear in mind that if the heir was a joint debtor, such as on a joint credit card, the surviving owner of the debt is still liable).
As part of the probate process, the deceased’s estate will be inventoried to establish its value. A creditor who has a claim against the deceased person’s estate is given a short time-period, one year from date of death, to file a claim against the estate. If they do not meet that timeframe (and most do not), then they no longer have a claim. Some creditors, like Medicaid, are required to be notified whenever probate is filed, and their claims are not time-limited. Likewise, if the deceased had a mortgage on real estate, the lender is protected. But generally, a creditor is on their own to both discover the death and file their claim, even if probate has not been filed, and if and only if they have properly preserved their claim will they receive payment, and then only to the extent the probate estate has assets.
If there are sufficient assets to pay the debts and still do as the deceased intended, then everyone named by the deceased will receive what was intended for them. Unfortunately, however, if there are insufficient assets to satisfy the debts and pay the bequests, then those well-intentioned gifts intended for loved ones will be reduced or eliminated.
The law allows for a number of ways to limit creditor access to the bequest intended to be left to a loved one, but it requires advanced planning to, for instance, create an irrevocable trust that transfers ownership while still allowing the creator to benefit from the asset, so that it can be preserved for the deceased’s loved ones and can no longer be reached. Often, this is an opportune time for families to decrease their own personal liability.
For more information about the impacts of the law when a loved one passes away, and how to protect your loved ones, talk to an estate planning attorney.