When you die, your debt does not simply vanish. The debts incurred during your life are still due and payable after your death. Now, you may be wondering, who is responsible for paying the debt after you pass? Your estate!
Whether your estate passes through probate, a court-supervised administration of your estate, or a trust administration, which is a private administration without oversight from the court, debts must be satisfied even after your passing.
During a probate administration, creditors have a certain amount of time to submit claims for the amount owed. If a claim is submitted during the statutory time frame, the administrator or executor for the estate will either approve or reject the creditor’s claim and file the acceptance or rejection with the court. If the creditor claims are worth more than the estate, the balance of the debt(s), above and beyond the value of the estate, will likely go unpaid. Similarly, during a trust administration, the trustee is responsible for paying off all valid liabilities held by the decedent prior to distributing the trust estate.
It is important to keep in mind that assets held by your estate may need to be sold in order to pay off the remaining liabilities incurred during your life. With that being said, there is an exception when a loved one takes an asset and assumes the liability. An example of this would be a loved one inheriting a vehicle or real property and assuming the loan payments in his or her individual name. Additionally, if you have debts with a co-signer, a joint credit card, if there is state law requiring a spouse to pay the debt(s), or if you live in a community property state where jointly held property is used to pay and satisfy debts, the satisfaction of the debt beyond what is payable from the estate may pass to the other named individual(s) that jointly hold the debt.
Medical expenses, including those for your final illness and death, as well as certain student loans, will also need to be addressed. The care provider or collection agency will determine what happens with your medical debt, i.e., whether it can be declared uncollectible or if they will move forward with satisfaction from your estate.
Regardless of whether your estate moves through administration in probate or trust, all debts must be satisfied prior to your beneficiaries or heirs taking their share(s).
If you are in the process of administering an estate or are anticipating it in the near future, you should consult with an attorney to determine what debts are owed and whether they are valid.
Tresp Law, APC has two locations in Southern California and a team of experienced attorneys to represent you in estate planning, administration, and trust and estate litigation. Contact Tresp Law, APC today for a free consultation by calling us at 858-248-2779 or email us here.
