Who is Responsible for Debts When a Family Member Dies?

Whether you are putting together your estate plan or you have recently lost a loved one and are working toward putting his affairs in order, it is important to understand who is responsible for the deceased’s debts after death. Not only will this help ensure that debts are managed in an orderly manner and don’t create an undue burden, but it will help survivors protect themselves against dishonest debt collectors and all-too-common scams.

Who Pays Debts after Death?

With few exceptions, a deceased’s debts do not become the responsibility of his family members or heirs. However, the deceased’s estate is responsible for those debts. Here’s a simple example:

John dies with $5,000 in credit card debt, leaving his estate in equal shares to his two adult children. The children are not directly liable for his credit card debt—the credit card company cannot pursue collection actions against either of them. However, the estate is liable for John’s debts. Thus, if there is money in the estate to cover the $5,000 in credit card debt, that debt takes priority over any bequests that John has made. In other words, his children will inherit only what is left after the credit card debt and any other legitimate debts have been paid.

In the scenario above, if the estate does not have $5,000 in assets to pay to the creditor, the creditor has no recourse and will typically be forced to write off the debt.

Factoring Payment of Debts after Death into Estate Planning

The distinction described above plays a role in estate planning, as not all assets pass through the estate. For example, while a brokerage account passed to the children through a will would be a part of the estate and committed to satisfying the deceased’s debts, life insurance proceeds paid directly to the children as beneficiaries would not.

Of course, there are other considerations when determining how best to pass property after death, but awareness of liability for debts and which assets are collectible in payment of those debts is one important consideration.

Understanding Your Obligations for a Loved Ones Debts after Death

Unfortunately, those who have recently lost loved ones may be at risk from unscrupulous debt collectors, or even scammers who do not hold any legitimate debt. Both scenarios play out almost exactly the same way: the surviving spouse, child, parent, or other close relative of a recently-deceased person is contacted by someone purporting to be attempting to collect on a debt the deceased owed.

Depending on the caller, the pitch to get the surviving relative to pay the debt may take one of several forms. The most common are:

• Claiming that the survivor is legally responsible for the debt and legal action may be taken against him or her
• Pressuring the survivor to pay the debt on moral grounds, or to “help out” the deceased relative

With a few very specific exceptions, surviving relatives are not responsible for debts of the deceased. In the rare instance in which there is shared legal responsibility, the survivor will typically already be aware of the obligation. For example, if the deceased and his spouse have a joint credit card account, the spouse will be responsible for continuing payment on the account. Or, if a parent co-signed on an adult child’s personal loan, car loan or other debt, the parent will generally remain liable for that debt if the child passes away.

In some cases, the debt the caller is attempting to collect does not even exist: the recently deceased and their relatives are frequent targets of identity thieves and scam artists.

What to Do If You’re Contacted about a Deceased Relative’s Debt

Many people who have recently lost loved ones are confused when they receive calls from those claiming to be creditors of the deceased. It’s a stressful addition to an already difficult time, and both shady debt collectors and those who fabricate debts are counting on the family member being too upset and distracted to think clearly and get legal advice.

If you are contacted by someone who asks you to pay the debt of a deceased relative, make sure that you are fully informed before you take any action. Ask the caller for complete information, including the name of the original creditor, the account number, the amount of the debt, the name of the company contacting you, the name of the representative who is calling, their return telephone number and their mailing address.

Often, opportunists hoping to collect on a fabricated debt will become argumentative or disconnect when you ask for this information. If the caller does provide the information requested, contact the personal representative of the estate and pass along that information. If you are the personal representative of the estate and are unsure how to proceed, contact the estate lawyer assisting you with administration.