Losing a loved one is never easy. There's much for the surviving spouse, partner, and other relatives to sort through, including any unpaid debts. Debts don't go away when a person dies, but that doesn't mean the family is responsible for the outstanding balance.
Debts technically can't be inherited, but some can be passed on depending on the type of debt and how it's owned. The estate—the assets left behind when a person dies—is generally responsible for paying any outstanding debts. Understanding what happens to debts can help you figure out how to handle debts left behind or help with estate planning.
- Certain types of debts can be passed down based on how the debt is owned.
- During the probate process, the executor of the estate sorts out assets and expenses.
- Assets that go through probate may be used to take care of outstanding debts.
- Collection agencies aren't allowed to pursue relatives for the deceased person's debts.
Debts That Can Be Inherited
Several kinds of debts of a deceased person may become your responsibility, depending on the type of debt and your relationship to them. For example, some states require the surviving spouse to pay certain debts like healthcare expenses.
Here are other types of debts you could be responsible for:
You'll be responsible for debts you hold jointly if the other party dies. For example, if you hold a joint credit card with your spouse and are equally responsible for regular monthly payments, you will still be responsible for payments if they pass away.
Authorized users aren't responsible for a credit card balance after the death of the primary cardholder.
If you’ve cosigned a loan, you've already agreed to be responsible for the debt if the primary borrower isn't able to pay. Your agreement still stands even after the primary borrower's death, so you will be required to make the payments if the loan isn’t paid off by their estate.
Mortgage or Home Equity Loan
Inheriting a house with an outstanding mortgage or home equity loan means you'll have to make a decision about what to do with the real estate and how to handle the debt.
"If you inherit an asset that has debt attached to it, you will be responsible for making payments on that debt if you want to keep the asset," advises Diedre Braverman, an estate planning attorney with Braverman Law Group located in Boulder, Colo.
Even if you're considering selling the property, you must stay current on payments until the sale is final to avoid foreclosure.
Mortgage payments won't go on your personal credit report, Braverman said.
Debt in Community Property States
In certain states, two spouses equally own any money earned, property acquired, and debts accrued during the marriage. In these community property states, laws, a surviving spouse is responsible for repaying debts acquired during the marriage.
Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
In three states—Alaska, South Dakota, and Tennessee—spouses can opt into the community property system or designate specific assets or debt as community property.
With a deeded timeshare, heirs may inherit benefits of the timeshare and the payments that come along with it. Depending on the timeshare company’s policy, an heir may have the option to decline the timeshare, and it will be offered to the next-of-kin. If both the heir and next-of-kin decline the timeshare, it may be foreclosed and the resulting debt will be taken from the estate.
Debts That Can’t Be Inherited
Several types of debts generally won't be passed on to a spouse or relative, including individually-held credit card debt, federal student loans, unsecured loans, and collections. (A surviving spouse may be responsible for paying these debts in a community property state.)
While those types of debts can't be inherited, they aren't automatically canceled. Instead, assets in the estate will first be used to pay off creditors who submit a claim. If the amount of the debt exceeds the estate assets, creditors may write off the debt and will not hold someone else responsible for paying it.
How Debt Is Handled After Death
Probate is the process where the court determines whether a will is valid.
"[It's] essentially the retitling process of all the decedent's assets," Braverman said. "In the process of retitling assets, any debts have to be paid before probate assets are distributed to the beneficiary."
Each state and municipality has its own rules for the length of time creditors can make a claim and how debts are prioritized. The executor of the estate gathers the assets, pays bills and taxes (including debts), then distributes any remaining assets according to the will or by state law if there is no will.
The executor of the estate could be responsible for debts if they didn't follow certain state probate laws.
Probate and Non-Probate Assets
Not all assets pass through probate and, if they don’t, they can't be used to pay the estate's debt. For example, the person who died may have transferred a title to someone else before their death, or had a mechanism in place to transfer ownership. These non-probate assets should have a joint owner, trust owner, or named beneficiary (including a trust).
On the other hand, probate assets must pass through probate and are divided to heirs based on the decedent's will. These are typically assets you individually own that do not have a named beneficiary.
Probate and non-probate assets vary by state so make sure you check with your state laws for the rules that apply to you.
|Probate Assets||Non-Probate Assets|
|Real estate||Real estate or other assets held as a joint tenant with right of survivorship|
|Stocks and bonds||Retirement accounts with a named beneficiary|
|Bank accounts||Life insurance with a named beneficiary|
|Business interests||Living trusts|
|Vehicles and boats||Joint bank accounts|
What If Debts Can’t Be Paid?
Some creditors cancel debt that can't be paid out of the estate such as when there aren't enough assets.
If the deceased person has collection accounts that come up after probate, family members aren't responsible for paying those, unless they were jointly owned. In addition, under the debt collection law, collectors can only discuss collection accounts with the deceased person’s spouse, parent (if the deceased was a minor), guardian, executive, or administrator.
Collectors can contact other relatives, generally only once, to get contact information for the person responsible for paying the deceased person's debts.
Contact an attorney if a debt collector contacts you about paying a deceased person's debt.
Frequently Asked Questions (FAQs)
Can your parents inherit your debt when you die?
Parents won't be responsible for debt of a decedent child unless they are cosigners, joint account holders, or the primary cardholder on a card where the child was an authorized user. Parents may be subject to pay debts on any inheritance received from the child.
How long does probate take?
The timing of probate varies by state, the complexity of the estate, and whether the will is contested, if a will exists. Probate can take longer if there are complex assets, multiple beneficiaries who live in different places, or a large window for creditor claims.
When is probate not necessary?
Probate isn't necessary if there are no assets or if the assets will pass to heirs without a probate. For example, probate can be avoided if property is held by a revocable living trust, if all the estate's assets are jointly owned, or if the assets have a designated beneficiary.