When a parent dies, the adult children often ask if they are responsible in any way for the debt that is left behind. The quick and easy answer is, no, you are generally not responsible for the debts of your loved one who passed away. There are exceptions however, and it is important that you take the next steps properly after someone passes to ensure that you are not liable for any debts they may have. In many cases a parent or other loved one who passes away has debts that exceed their liabilities. Even if you are named as an executor in a will, no one can require you to administer the estate, pay their debts, or otherwise deal with estate assets. However, there may be sound reasons why you want to do so. Once you are sworn in as an executor, you are required to handle the assets according to law, and you are liable if you mishandle assets.
You are only responsible for handling the assets correctly.
In many cases when we look at the assets and debts of a person who has passed away, we find that their estate is essentially bankrupt—that is, that there are not enough assets to sell in order to pay off any debts of the estate. Typical debts of someone who has passed away include medical bills, credit card bills, past due rent, or mortgage and foreclosure debts. Of course, if there are assets and they have any value, we can sometimes salvage the estate.
By opening an estate, you are not personally liable for more than what is in the estate. As a very simple example, suppose this is the estate:
In this example, if you open the estate, you are only responsible to liquidate the $60,000 in assets (that is, sell the house, stocks, car, etc. that makes up that $60,000 in value) and pay the debts you are able to (more on that below). You are not responsible to personally pay for the other $40,000 in debt as long as you follow the law.
How do you decide which debts to pay?
Deciding which debts to pay is not difficult in most cases because the law already provides for what order creditors are to be paid off. As an executor, your job (in consultation with an estate attorney) is to ensure that the top-priority creditors are paid. As long as you do that in the proper order, you are not liable for the debts that are not paid.
Why would I open an estate if I’m just going to pay off some debt?
The advantage to opening an estate that will not pay all of its debts is that we can pay the executor a fee (this is a top-priority debt) and reimburse family for funeral expenses (also a top-priority debt). A good estate attorney can help you to ensure that you are following the rules and that you will not be personally liable in the end.
However, if you open probate and misappropriate the assets or if you take assets for yourself out of probate and chose not to pay all the creditors, then you will be liable for the amount of the property that was misappropriated. You can also be liable to the Department of Revenue if you have failed to pay the taxes on the assets involved. This is why it is important to consult with a probate attorney.
Guarantors and Co-signers are still liable.
Of course, we should also take note that an individual’s death does not change your obligation to pay any debt you are a co-signer on. If you co-signed on the decedent’s student loans or their car loan, you will still be responsible for that debt, personally. This is true whether you open an estate or not—but it may be an additional reason to open an estate and see if estate assets can lawfully be used to pay off that debt.
Finally, children can be liable for misappropriating their parents’ assets during their lifetime if those assets should have been used to pay for medical care. The Department of Human Services sometimes seeks contribution for costs that were incurred by the government for medical care if the children misused or failed to preserve assets in certain situations. Once again, this would be true regardless of whether an estate is opened.
Conclusion: Call a probate attorney at Cornerstone Law Firm today
As with many legal issues, there are many complications that can arise out of an estate. If you have any particular concerns or want to get in contact with an attorney regarding an estate, give us a call at Cornerstone Law Firm.