Death is a terrible occurrence which also incurs a lot of emotion. Having to sort out the debt of the deceased only amplifies the moment. This is especially true when the debt outweighs the assets, or when a client is unsure if they are responsible for the debt. Luckily, we can provide some simple guidance on debt and what your clients can do when the debt collectors come calling. It is important to remember that once assets from an estate are exhausted, the beneficiaries or relatives are typically not responsible for any remaining debt of a deceased relative.
In cases of a surviving spouse, if the married couple kept separate bank accounts and credit cards, but filed joint tax returns, the surviving spouse is not likely to be personally liable for the late spouse’s debt. The executor should be made aware of the debts and can inquire whether the surviving spouse is responsible or not. Executors should not avoid the debt holders, but rather make sure they communicate and understand the source of the debt. When an estate doesn’t have sufficient assets to pay all debts in full, the debts are prioritized.
When prioritizing debt, it will most likely start funeral expenses and expenses related to the settlement of the estate. Surviving spouses can be reimbursed under certain situations if they have prepaid funeral expenses. Surviving spouses can also be reimbursed for the cost of probating the will and any costs related to the administration of the estate (i.e. legal fees). The estate would then pay taxes and other debts according to State and/or Federal laws.
The executor should attempt to pay each debt in full prior to moving to the next debt holder. If there’s not enough money to pay everyone in full, the creditors would be paid proportionally. If the money runs out, there is nothing left to pay the credit card bills. Creditors must submit their proof of claim within a specified time period. Executors of the estate can disagree with an amount claimed, but the creditor must be informed.
The last thing grieving family members want are calls from debt collectors demanding payment of a loved one's outstanding debts. According to the Federal Trade Commission (FTC), relatives usually have no legal obligation to pay the debts of a family member who has died. The rights of surviving relatives are covered by the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices to collect from family members.
Basically, if there isn't enough in the estate to cover outstanding debts, they typically go unpaid. Even a spouse's obligation to pay may be limited under state probate law. Generally, children won't have to pay these debts either, but they could see their inheritance reduced as assets are depleted to cover debts. Avoid the attachment of pension or IRA’s by creditors to cover debts by listing children as beneficiaries to these items.
Death is a terrible occurrence which also incurs a lot of emotion. Having to sort out the debt of the deceased only amplifies the moment. This is especially true when the debt outweighs the assets, or when a client is unsure if they are responsible for the debt. Luckily, we can provide some simple guidance on debt and what your clients can do when the debt collectors come calling. It is important to remember that once assets from an estate are exhausted, the beneficiaries or relatives are typically not responsible for any remaining debt of a deceased relative.
In cases of a surviving spouse, if the married couple kept separate bank accounts and credit cards, but filed joint tax returns, the surviving spouse is not likely to be personally liable for the late spouse’s debt. The executor should be made aware of the debts and can inquire whether the surviving spouse is responsible or not. Executors should not avoid the debt holders, but rather make sure they communicate and understand the source of the debt. When an estate doesn’t have sufficient assets to pay all debts in full, the debts are prioritized.
When prioritizing debt, it will most likely start funeral expenses and expenses related to the settlement of the estate. Surviving spouses can be reimbursed under certain situations if they have prepaid funeral expenses. Surviving spouses can also be reimbursed for the cost of probating the will and any costs related to the administration of the estate (i.e. legal fees). The estate would then pay taxes and other debts according to State and/or Federal laws.
The executor should attempt to pay each debt in full prior to moving to the next debt holder. If there’s not enough money to pay everyone in full, the creditors would be paid proportionally. If the money runs out, there is nothing left to pay the credit card bills. Creditors must submit their proof of claim within a specified time period. Executors of the estate can disagree with an amount claimed, but the creditor must be informed.
The last thing grieving family members want are calls from debt collectors demanding payment of a loved one's outstanding debts. According to the Federal Trade Commission (FTC), relatives usually have no legal obligation to pay the debts of a family member who has died. The rights of surviving relatives are covered by the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices to collect from family members.
Basically, if there isn't enough in the estate to cover outstanding debts, they typically go unpaid. Even a spouse's obligation to pay may be limited under state probate law. Generally, children won't have to pay these debts either, but they could see their inheritance reduced as assets are depleted to cover debts. Avoid the attachment of pension or IRA’s by creditors to cover debts by listing children as beneficiaries to these items.
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