What Happens to Debts When You Die
A question posed to “Elder Law Answers,” a popular online elder law reference site, captioned “What Happens To Your Debts When You Die?” drew my attention recently. The answer was intended for a general national audience but Pennsylvania has some twists and bends of its own. The question is worth asking. Here are some answers.
Your debts do not die with you. Your debts continue on even if you do not. Whether they need to be paid and under what circumstances depends first on knowing something about your probate estate. This is because your bills are typically paid first from your probate estate.
Your probate estate consists of assets that are in your name only at your death and do not have a beneficiary designation. In order to transfer them to your heirs, the people you name in your Will, your Will needs to be probated or submitted to the Register of Wills in the County where you resided at the time of your death. Your Executor has this responsibility. If you do not have a Will, someone who is entitled to funds from your estate might apply to be appointed Administrator. After appointment, the Administrator functions in much the same way as an Executor.
The Executor’s job is to pull together the assets that are going to pass by Will and the bills or debts to be paid, then to pay the debts, including taxes and expenses of probate, and then distribute the remaining funds to the beneficiaries as the Will directs. If there is no Will, the State where you lived has an intestacy law that designates how the estate is to be distributed.
Suppose the Executor has an insolvent estate, one that does not have enough in the probate estate to pay all the bills? The State lists an order of distribution in which bills are to be paid. For instance, at the very top list are costs such as the costs of administration of the estate and shortly thereafter, payment of funeral bills. In Pennsylvania, for instance, medical bills, including payments from Medical Assistance for medical care incurred within six months of the person’s death are given higher priority than older medical bills. Credit card bills are unsecured debt and are on the bottom of the pile.
If there is not going to be enough in the estate to pay all bills, it is important to know which ones need to be paid, including, for instance, the executor’s fee, and those that might not be.
If there is secured debt, such as a loan on a car, the creditor could take the vehicle.
Usually other people do not owe on your debts but there are exceptions. Although collection agencies may call following the death of a loved one, they are often not attuned to who owes what and under what conditions. Anyone who receives these calls where no legal duty is owing should, at minimum, check to make sure that nothing appears on his or her credit report regarding the decedent’s bill.
Some people can be accountable on your debts. If someone cosigned on your loan or guaranteed payment on a debt, they may be held accountable. A spouse, under the doctrine of “necessaries” might be found to owe for certain specific bills regarding support of a deceased husband or wife such as housing or care but not for other bills. In this situation, the spouse should really seek the advice of a knowledgeable attorney.
Pennsylvania has a “filial support” law that has been used to find children responsible for bills of “indigent” parents but this law has generally been applied only to long term care such as nursing home bills where a Medicaid application is unsuccessful or personal care (assisted living) bills. Again, legal help should be sought if any claim for these bills is made.
Beneficiary designations and joint titling in the right case may help in reducing exposure to debt. Beneficiaries and joint owners would not be responsible for the general debts of your estate from those funds. In the right situation, these strategies may protect loved ones. Make sure you know the legal pluses and minuses before making assets joint. When naming beneficiaries be sure to include contingent or secondary beneficiaries.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.