Mortgages, credit card bills and car loans are among the types of debt left behind upon the death of a loved one. What happens to these debts? Can the burden of payment be passed on to surviving children or spouses? How about mortgages? In other words, how is debt handled upon death?
The Estate Deals With Debt
Although there are exceptions, in general, upon death, our debts become part of our “estate”—the sum total of what we have and what we owe—when we die. If we have created a will, the designated executor must work through the probate process to attend to claims against the estate before any assets can be distributed to beneficiaries named in the will. If there is no will, a court appointed administrator (often a family friend or relation), handles the affairs of the estate, in accordance with state probate and intestacy laws. In either case, though family members are typically not accountable for paying the debts of a loved one out of their own pockets, what they inherit from the estate may indeed be reduced, as estate assets are designated to pay down debts. U.S. News offers this guidance:
“As a general rule, it is the estate of the deceased person that is liable for his debts,” says David Clark, attorney in …Michigan. This means your spouse, if his or her name isn’t on the debt, is technically in the clear. So are your children. But… if your spouse or children stand to inherit the assets in the estate, and the estate first has to pay off debts, the assets will be fewer. So your debts won’t instantly disappear…”Children are not liable for the personal debts of the deceased,” Clark says. “However, the Fair Debt Collection Practices Act allows collectors to discuss such debts with the deceased person’s family.”…Some debt collectors may test the boundaries of what’s ethical…Consumers may get some relief from out-of-bounds debt collectors by reporting them to their state’s attorney general’s office or the Federal Trade Commission…In a nutshell, no debts can be inherited.
When settling the affairs of the deceased, it is helpful for families to know that during the probate process in many states, administrator bonds are required. Colonial Surety is here to help administrators anywhere in the country quickly and affordably secure the required bond. Our self-service, online platform is user friendly, making administrator bonds easily, directly, and quickly available. Obtain Administrator Bonds Right Here.
Mortgages, Cars, Credit Cards…
These are among the most typical bills left behind upon the death of a loved one. Experts emphasize that what happens to them depends on the estate:
If you have a house, a car and credit card debt when you die, and your family still lives in the house, the monthly mortgage obviously needs to be paid one way or another. If the mortgage payments don’t continue, the house could be foreclosed. Similarly the car could be repossessed if car payments don’t continue. If you leave behind credit card debt, however, and your spouse or children didn’t co-sign on the credit cards, you’re in a gray area. If you leave money behind, and you have someone handling your affairs, it may end up going to the credit cards or the hospital you owe money to. But if you don’t leave money behind and you owe money, chances are your family will not have to pay, says Michael Sullivan, a personal financial consultant at Take Charge America, a national nonprofit credit counseling and debt management agency….
Good To Know
Lawyers remind us that it can take up to 18 months to settle an estate (though expedited state probate processes can help). There are forms, deadlines, and to-do lists to attend to when a loved one dies. Even fairly ordinary tasks like cancelling the utility bills require careful attention. The tasks of settling the affairs of the estate are usually managed by the executor, personal representative or administrator. These terms differ by region and circumstance, and it is not uncommon to find them used somewhat interchangeably. Elder Care Direction offers this breakdown on the terms: personal representative is generally used as an “umbrella term” for the fiduciary managing the affairs of someone who has died. When there is a will, this fiduciary may be referred to specifically as an executor; when there is no will, the court appointed fiduciary is typically referred to as an administrator. Despite the terminology subtleties and regional variations, personal representatives, executors and administrators share a common legal duty: they are fiduciaries who must avoid self-interest while acting in the best interest of the estate and its beneficiaries, in accordance with applicable state laws.
Given the significant trust placed in fiduciaries, they are often required to secure bonds guaranteeing their faithful performance. As a leading national bond provider, Colonial Surety helps administrators, personal representatives and executors in every state quickly and affordably obtain their bonds. The steps to obtaining a bond with Colonial are easy: get a quote online, fill in the information, and enter a payment method. Print or e-file the bond from anywhere, anytime.
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