I often get asked by beneficiaries of a deceased family member’s estate if they are personally responsible for paying off the family member’s debt. The answer is generally “no” but it depends upon the debt and how connected you are to the family member’s finances.
As a general rule, the assets in a deceased person’s estate must first go toward paying off the person’s debts before the beneficiaries receive any inheritance. A mortgage on a house may force the sale of the house unless there are other assets in the estate to pay off the mortgage or a beneficiary who wants the house as part of his or her share of the estate is able to pay off or refinance the mortgage. If the assets in the estate are not sufficient to pay off the debts, the beneficiaries are not personally responsible to make up the shortfall. Instead, the creditors usually will have to eat the shortfall.
Assets that pass by beneficiary designation to an individual, such as life insurance and retirement benefits, are not subject to paying off the deceased person’s debt. However, life insurance and retirement benefits payable to the deceased person’s revocable living trust or estate will be subject to payment of debts.
You may be personally responsible for paying off a deceased person’s debt if you co-signed or guaranteed a loan to deceased person. Co-signers on joint credit cards, mortgages and other loans are on the hook for any remaining balances. A guarantor of a loan will have to pay if the deceased person’s assets are not sufficient to cover the loan. In community property states, the surviving spouse is responsible for marital debts.
TIPS: Be careful about co-signing on credit accounts. And have enough life insurance to cover your debt.
Excerpts taken from “Debt Questions You May Be Afraid to Ask” by Sean Pyles, Q&E Media.
If you have any questions, please call Karen L. Stewart, Attorney and Counselor at (248) 735-0900.
For more information, please see my website, www.customestateplans.com.