What Happens to Your Debts When You Die

You might have sizeable debt when you die or you might be totally debt free. In either case your heirs and the Executor of your Will need to know what to do. Here are some guidelines to help.

Your debts do not die with you. We all might wish that our credit card debt or back taxes and other obligations would end at least at our death. Generally speaking, however, your debts continue on even if you do not. On the other hand, though, 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.

What is a probate estate? Your probate estate is comprised of assets that are in your name only at your death and do not have a beneficiary designation. If you have life insurance that goes directly to one or more individuals, this is not a probate asset. The same applies to joint bank accounts, jointly owned property, and retirement funds that name one or more individuals as beneficiaries.

If your house is titled in your name alone, you have a bank account in your individual name and assets that have no named beneficiary, these are probate assets. In order to transfer probate assets to the beneficiaries named in your Will, your Will needs to be probated or recorded with the Register of Wills in the County where you resided at the time of your death. Your Executor has this responsibility. However, the Executor is not legally required to probate a Will. Sometimes there are reasons not to.

If there are creditors, a creditor could apply to establish an estate administration. However, this does not happen often.

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. Where 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 finds there are not enough assets in the probate estate to pay all the bills? Pennsylvania has a law for this. Pennsylvania by law lists an order of priority in which bills are to be paid. At the top are costs such as the costs of administration of the estate which includes the Executor and attorney’s fees and cost of filing and payment of funeral bills. Medical bills, including payments made by 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.

Where there is secured debt such as a mortgage on the house or loan on the car, the loan needs to be satisfied. Often the resolution is by selling the asset and paying the mortgage or loan from the proceeds of the sale.

If there will not be enough in the estate to pay all bills, it is important to know which ones need to be paid and in what order and to separate those from others that might not be.

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 usually 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 might 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 any case, the spouse or Executor should seek the advice of a knowledgeable attorney where there are questions.

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.

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