Some people who first talk to an estate planning lawyer are worried that their families might have to pay their debt in the event they die. While this is a common concern, it’s not something you should worry too much about. In most situations where people die leaving behind debts, those debts do not become the responsibility of family members to repay. While there are some limited circumstances in which family members might be called upon to repay a debt, it is not common. Here’s what you should know about your family having to repay your debt after you die.
Your Estate and Your Debt
When you die, all the property and legal issues you leave behind become your estate. Your estate is kind of like a separate legal entity that exists after you no longer do. The estate itself is not a person, but there is someone who manages it, known as the estate administrator, executor, or personal representative. It’s up to a court to appoint the estate administrator, but once appointed, it is that administrator’s responsibility to manage all of the property and debt left behind by a deceased person.
The process of determining what happens to all the property in an estate is generally known as either probate, or the estate settlement process. Throughout this process it is the administrator’s job to determine if the decedent left behind any debt, and if so, which creditors get repaid, and in what order.
To repay estate debts, the administrator will not use his or her own money, or the money that belongs to family members. Rather, the administrator will pay debts using estate funds.
The family members of the decedent, even though they might stand to inherit from the estate, will not receive any inheritances until estate debts get paid. So, if there are more debts than assets in the estate, it is very likely that the family members will not receive inheritances, but that doesn’t mean they will have to repay the remaining debts. If there are more debts than assets, some creditors will go unpaid.
The primary exception to the idea that the estate will be responsible for paying any debt left behind by the decedent comes with joint debts. With joint debts, two or more co-borrowers take on the same responsibility for repaying the debt when they sign up for it. For example, if parents cosign a private student loan for a college aged students, those parents are responsible for repaying the loan amount even if that student later dies. The same is true of spouses who have joint credit cards, or anyone else who might have a joint debt with someone who dies.