Who Pays Off Medical and Other Bills After Death?
It's natural to panic when a loved one has died and you begin to realize that his medical and credit card bills have really piled up, maybe due to his final illness or spending over the course of years. Are you responsible for paying them?
In most cases, the answer is no. Exceptions can exist, such as if you're the surviving spouse and you live in a community property state, but for the most part, heirs cannot inherit debt.
What Is a Solvent Estate?
A solvent estate is one where the decedent left sufficient assets and cash to pay off his debts after his death. When the value of everything he owned is added up, including money in bank accounts, you'll find whether the total exceeds the amount he owed. If the estate is solvent, the executor or personal representative appointed to manage his affairs will pay his bills from the estate's coffers, liquidating assets if necessary.
This equation includes assets the decedent owned in his sole name and those that comprise his probate estate. Assets that do not have to pass through probate to transfer to living beneficiaries are not included, such as retirement accounts, bank accounts, or real estate that pass directly to a beneficiary by operation of law.
If the value of all the decedent's assets adds up to $100,000 and his bills equal $50,000, his estate is considered solvent. The personal representative can pay his bills in full. What's left—in this case, $50,000—goes to the beneficiaries named in the decedent's beneficiaries if he had an estate plan such as a last will and testament. Otherwise, it would go to his heirs-at-law, individuals so closely related to him that they inherit by state law in the absence of an estate plan.
What Is an Insolvent Estate?
An insolvent estate is one that doesn't have enough assets to pay off all the decedent's bills. When the value of his probate estate is tallied up, the total is equal to or less than the bills he owed.
When an estate is insolvent, the personal representative must prioritize payment of the decedent's bills according to federal law and the laws of the state where he died. If his assets equal $100,000 but his credit card and medical bills add up to $150,000, the deceased person's estate is insolvent in the amount of $50,000 and someone is not going to get paid.
State and federal statutes dictate which creditors should be paid in full, which will receive only partial payment, and which will get absolutely nothing. In some states, such as Florida, medical bills take precedence if they were incurred within a certain period of time from the decedent's date of death, usually 60 days. The personal representative would have to pay these debts first, and creditors such as credit card lenders would have to proportionately share in any money that's left over.
Unfortunately, the decedent's beneficiaries or his heirs-at-law typically receive nothing if the estate is insolvent, but neither are they typically responsible for paying off the balance of the decedent's unpaid debts. The companies that weren't paid in full usually have to write off their bad debts—with the possible exception of nursing homes and hospitals in some states. Some jurisdictions do allow these institutions to pursue adult children for some of their parents' unpaid medical bills if the estate can't cover them.
Of course, there's an exception to every rule, and the situation changes with debts that were not taken in the decedent's sole name. If you co-signed with him on a credit card or an auto loan, this debt does not go away with his death even if his estate is insolvent. Nor is his estate responsible for paying it if indeed it is solvent.
In this case, consumer law trumps estate law. The lender has someone else contractually on the hook for this money, and it is totally within its rights to pursue the son for the entire unpaid balance, just as it would be if the decedent had lived but had defaulted on the loan instead.
Marital Debts in Community Property States
Debts incurred by either spouse in a community property state are considered equally owed by both of them, even if only one spouse contracted for the debt. They're effectively owed by the marital "community," not by either spouse individually, so the surviving spouse could remain liable for these debts.
"Could" is the pivotal word. These laws can be particularly complex and can vary somewhat between the community property states: California, Texas, Nevada, New Mexico, Arizona, Louisiana, Wisconsin, Idaho, and Washington as of 2018. If you live in one of these jurisdictions and your spouse has died, speak with an attorney to be absolutely sure you understand your rights and responsibilities. Some of these states do not consider that medical debts are owed by the marital community, but others do.
In most cases, you will be responsible for at least some portion of credit card debts, whether they're in joint names or just in the name of your spouse.
If the Decedent Received Medicaid
If the decedent was receiving Medicaid benefits, the state typically reserves the right to seek repayment of these benefits even when the decedent leaves an insolvent estate. This has the effect of pushing these debts to the front of the line for payment in an insolvent estate, although the state typically cannot pursue relatives for payment or attempt to collect if the decedent left a surviving spouse who is still alive.
Medicaid rules can be extremely complicated, and they also can vary from state to state. If your parent was receiving these benefits, you'll want to speak with an attorney to find out where you stand.