Everyone knows that when you pass away, those you’ve named in your Will or Trust stand to inherit your possessions. But do they also inherit your debts? As a general rule, your loved ones do not inherit personal responsibility for paying off your debts after you’ve passed away. Here’s how it works:
When you die, the person in charge of settling your estate (either your personal representative or your successor trustee) will have the responsibility of taking stock of your assets and your debts. He or she will identify and list all of your assets, and ascertain the value of each one. He or she will also identify and list all of your final debts, along with the amount of money owed to each creditor.
Then, your personal representative or successor trustee will prioritize your debts in the order set forth by state law. He or she will go about paying off these debts, in order of priority, using the assets belonging to your estate. Hopefully, the value of your assets will exceed your total debts, and once all your debts are paid off, your remaining assets will be distributed to your heirs or beneficiaries.
In some situations, though, there just aren’t enough estate assets to go around. When this happens, the person in charge of settling your estate will use the assets of your estate to pay as many of your debts as possible, in order of priority. Once the assets run out, the remaining creditors will be out of luck; they will not be paid by the estate, nor can they collect from individual family members of the deceased.
The exception to this situation is where a loved one is a joint debtor along with you. For instance, if you and your spouse are joint credit card account holders, then upon your death, your spouse will become responsible for the bills associated with that account.
Figuring out who is responsible for which debt after a loved one passes away can be a tricky process. An estate planning attorney can help you sort through the bills and determine which belong to the estate and which do not.