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Spiro J. Verras Blog

Friday, May 15, 2015

Do Heirs Have to Pay Off Their Loved One's Debts?

The aftermath of the great economic crisis of 2008 has left many older Americans facing substantial debt in their final years. Are you concerned that, rather than inheriting wealth from your parents, you will instead inherit their bills? The good news is, you probably won't have to pay them. You cannot inherit debts. Probate serves as a sort of bankruptcy, in which the creditors of the deceased have a final opportunity to be paid from the non-exempt assets of the estate before the assets are distributed to the beneficiaries.

Generally, heirs are not responsible for the deceased's outstanding bills. Creditors can seek to be paid what they are owed from the assets within the estate, but - with a properly administered probate - they cannot seek to recover from the heirs. However, non-exempt assets within the estate may have to be sold to cover the decedent’s debts.

Heirs are not responsible for a decedent’s unsecured debts, such as credit cards, medical bills or personal loans, and many of these go unpaid or are settled for less than their face value. Only if you were a co-signer on a loan with the decedent would you bear financial responsibility for the debt.

Unsecured debts that were solely held by the deceased parent do not require you to reach into your own pocket to satisfy the outstanding obligation. Regardless, many aggressive collection agencies continue to pursue collection even after death, often suggesting that you are ultimately responsible to repay your loved one’s debts, or that you are morally obligated to do so. Both of these assertions are entirely untrue.

Secured debts, on the other hand, must continue to be repaid or the lender can repossess the underlying asset. Common secured debts include home mortgages and vehicle loans. If the deceased had any equity in their house or car, you should consider doing whatever is necessary to keep the payments current, so the equity is preserved until the property can be sold. The reasonableness of continuing to make payments must be weighed within the context of the overall estate.

Personal representatives, executors, and estate administrators have a duty to locate and inventory all of the decedent’s assets and debts, and must notify creditors and financial institutions of the death. Your attorney will advise you in what priority debts are to be paid from estate assets. Do not pay off all of your loved one’s bills right away. If you rush to pay off debts, without a clear picture of the decedent's overall financial situation, you run the risk of paying more than you need to pay or being left with insufficient cash within the estate to cover higher priority bills, such as medical expenses, funeral costs, or the legal fees required to settle the estate.


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