When someone dies and leaves debts, you may ask if you have any personal liability to pay them. The answer is typically no, even though those debts don’t automatically disappear. However, there are situations, even when the deceased person did make a will, in which you may have to address issues with a loved one’s creditors after they are gone, says KAKE’s recent article entitled “Can I Inherit Debt?”
The responsibility for ensuring the estate’s debts are paid, is typically that of the executor. An executor performs several tasks to wrap up a person’s estate after death. They include:
- Obtaining a copy of the deceased’s will, if they had one, and filing it with the probate court
- Notifying creditors and other entities of the person’s death (like the Social Security Administration to stop benefits)
- Creating an inventory of the deceased’s assets and their value
- Liquidating assets to pay off any debts owed by the estate; and
- Distributing the remaining property to the individuals or organizations named in the deceased’s will (if they had one) or according to inheritance laws, if they didn’t.
In terms of debt repayment, executors (named when one make a will) must notify creditors who may have a claim against the estate. Creditors are given a set period of time to make a financial claim against the estate’s assets for repayment of debts. It’s not that uncommon for a disreputable creditor to attempt to get paid by the deceased’s relatives.
Any assets in the estate that have a named beneficiary, such as a life insurance policy, a 401(k), individual retirement account, a 529 plan, payable on death accounts or annuity, would be transferred to that beneficiary automatically and cannot be touched by creditors.
You typically don’t inherit debts of another like you might inherit property or other assets from them. Thus, if a debt collector tries get money from you, you’re under no legal obligation to pay.
However, if you cosigned a loan with the deceased or opened a joint credit card account or line of credit, those debts are legally yours, just as much as they are the person who died. If they pass away, you’d be solely responsible for repaying them.
You should also know that you may be liable for long-term care costs incurred by your parents, while they were alive. Many states require children to cover nursing home bills, although they aren’t always enforced.
As for spouses, the same rules of debt responsibility apply. However, for debts that are in one spouse’s name only, it’s important to understand how living in a community property state can impact your liability for marital debts. If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), debts incurred after the marriage by one spouse can be treated as a shared financial obligation.
When you go to make a will, consider using living trusts as a method to make it easier for your family and friends to manage your affairs.
Reference: KAKE (December 2, 2020) “Can I Inherit Debt?”