If you hold considerable amounts of debt, you may wonder whether your spouse or other family members will be responsible for paying it after you are gone. Even if you have a substantial estate and little debt, it is beneficial to understand how it may affect the assets you leave to your loved ones. An experienced estate planning attorney can help you address these issues and create an effective plan that protects your family’s financial interests.
How Debts are Paid After Someone Dies
When someone dies, both their assets and debts pass to their estate. This means that generally, the deceased person’s estate must take care of any unpaid debts. If there is not enough property or money, debts may go unpaid. In Pennsylvania, most assets must go through probate unless they are held in a trust. Accounts payable on death and funds from life insurance policies can also skip probate.
One of the first steps an executor or administrator must take is to notify creditors of the person’s death. The executor or personal representative must advertise the decedent’s death in two newspapers in the county where they resided for three weeks. Creditors have one year to submit their claims against the estate to receive payment for any unpaid debts. A lawyer can explain the probate process so the executor and beneficiaries understand how it works.
The executor or personal representative must pay inheritance taxes, medical bills, funeral expenses, court costs, and any other outstanding debts that may be left behind. If necessary, the executor may liquidate and sell assets to cover all debts of the deceased person. Once all debts are paid, any remaining assets will be distributed to beneficiaries according to the will or the laws of intestacy.
However, if the funds are distributed to beneficiaries and the estate does not have enough funds to cover other claims brought within the one-year period, the personal representative or executor can be held personally liable for paying these creditors.
What is an Insolvent Estate?
If an estate does not have enough assets to pay off debts, it is considered insolvent. In Pennsylvania, certain debts and expenses must be paid and prioritized in the following order:
1. The costs of estate administration, such as attorney fees, court costs, and the personal representative’s fees
2. The family exemption, which provides $3,500.00 for each family member who lived with the person at the time of their death
3. Funeral and burial costs, medical expenses, Medicaid costs, and any services performed by employees within the last six months
4. Cost of the grave marker
5. Rent for the deceased person’s home for the six months preceding their death and any claims by the Commonwealth of Pennsylvania
6. All other claims, such as medical bills and rent owed previous to the last six months of the person’s life
While some creditors of an insolvent estate may be paid, some may only receive a portion of what is owned or nothing at all.
Could I Be Held Personally Responsible for a Loved One’s Debt?
Generally, individuals are not required to pay the debts of someone who dies. However, there are rare exceptions to this rule, such as:
- You were a joint account owner with the deceased
- You were a co-signer on a loan
- In certain community property states, a spouse may be responsible for paying their deceased spouse’s debt that was acquired during the marriage.
Even if you were an authorized user on a credit card that belonged to the person who died, you are not responsible for paying their credit card debt. If creditors contact you about someone else’s debt, a family wills and trusts lawyer can advise you on whether you are legally obligated to repay it.
It is important to consider how your debts may affect the distribution of your estate when you pass away. The experienced estate attorneys at our law firm in West Chester can help you create a plan that keeps your loved one’s interests in mind.