A common fear many convey to their estate planning attorney is the concern that their family will have to pay the debts they leave behind. While this is important to consider and understand, generally your family will not be forced to repay any debts you leave behind. To understand why, you need a basic understanding of the process that follows death, and the status of debts left behind by the deceased.
Debt and Your Estate
Once you die, all property and legal issues you leave behind will be lumped together into an estate. Since you no longer exist, the estate owns all your property and is responsible for repaying any debt you left behind.
After you die, a court will appoint someone to manage your estate. This person is known as the estate administrator, executor, or personal representative and is the person who manages your estate.
Repaying Estate Debts
Even though your family members might stand to inherit the property you left behind, they do not own that property until it passes through a process we call probate or estate settlement. A key part of this process involves the executor determining if you have outstanding debts that need to be repaid. If so, the executor will determine which debts need to be repaid first, and use estate funds to do so. Once the executor has paid all legal fees and related costs and repaid all the debts, then the executor begins distributing the remaining assets as inheritances.
What this boils down to is that none of your family members will have to repay any debt you might leave behind. Estate debts must be paid by your estate before your family receives any inheritances. If there are more debts than assets, your family will not receive any inheritance, but they will not be responsible for paying your debts.
There is one big exception to this general principle. Joint debt-holders will be responsible for repaying joint debts. If you and your spouse have joint credit cards and you pass away leaving unpaid balances, your spouse will be responsible for paying what’s owed even if he or she never used the cards. The same applies to unpaid mortgages, loans and similar debts. Be sure you know what obligations are jointly owned that you will remain liable for if your co-owner dies.
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