How Does Debt Affect Survivors After a Loved One’s Death?

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When a loved one dies, you'll have a lot on your mind. But paying off the debt a spouse left behind should not be one of them. Here's what you need to know.

My husband had been dead less than a week when the first collections call came.

We didn’t have any credit cards or loans, but there were a few lingering medical bills we hadn’t paid — largely because we were busy with more important matters.

When the caller asked for my husband and I explained he was dead, I got the courtesy condolences, followed by the question of whether I was his wife. It was time to pay up, I was nicely told. When I told them I needed to pay for the funeral first, they said goodbye, only to call back a few days later and a few days after that.

It ends up I’m not alone. Although I have only anecdotal information from discussions with others, it seems to be a common occurrence that creditors descend upon grieving relatives to nudge them into paying their deceased loved one’s bills.

In case you find yourself in a similar situation, here’s what you need to know. Keep in mind that laws vary by state, so this article should not be considered specific advice for your situation.

Most don’t need to worry about inheriting debt

If you’re wondering whether you’re liable for your loved one’s debt, the short answer is no. Debt does not get passed down to heirs.

Of course, creditors typically won’t tell you that, and they are often depending on your sense of duty to pay off those debts. They will be kind and sympathetic, but ultimately their job is to cajole you into paying.

That said, there are exceptions to every rule, and the Federal Trade Commission cites four instances in which you might still be on the hook for a debt after your loved one dies:

  • You co-signed on the debt.
  • You live in a community property state (more on that in a minute).
  • You are the spouse, and state law requires you to pay certain debts such as health care bills.
  • You were responsible for resolving the estate and didn’t follow state laws.

For everyone else, you can rest assured you won’t be responsible for paying Great-Aunt Helga’s credit card balance once she leaves this earthly plane.

But estates may be liable

While you’re not on the hook for the debt, your loved one’s estate may be. The estate — their remaining assets — may be required to cover the costs of outstanding debts left by your loved one.

Creditors may file a claim in probate court, and money from the estate is used to pay those claims. What’s left then gets distributed to heirs.

If an estate doesn’t have enough money to pay off creditors, it’s considered insolvent. In that case, the unpaid debt should disappear. However, that won’t stop some companies from calling you for payment, particularly if you’re the surviving spouse.

A final note about estates: It’s important to note that not all assets are considered part of an estate. Non-probate assets are excluded, and creditors may not file claims against them. Typically, anything with a beneficiary or joint ownership is excluded from an estate and probate. Examples include:

  • Life insurance
  • Retirement funds such as 401(k)’s and IRAs
  • Real estate or joint checking or savings accounts with a right of survivorship
  • Accounts with payable-on-death or transfer-on-death provisions

In other words, you don’t have to worry about your spouse’s life insurance policy being wiped out to pay off their credit cards.

Community property states have different rules

Now, generally speaking, spouses aren’t responsible for any individual debt held by a husband or wife. In most states, if John Doe opens a credit card in his name alone, Jane Doe isn’t responsible for paying it off.

However, it’s a different story if you live in a community property state. In these states, if John Doe opens a credit card in his name, the debt becomes both John and Jane Doe’s responsibility even if Jane doesn’t charge a penny. In a community law state, when your spouse dies, the spouse’s debt becomes your debt even if your name isn’t on the account.

There are nine community property states where this scenario applies:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

Some marriages in Alaska may also be community property unions, but couples must specifically opt in to that arrangement.

Community property provisions apply only to debts incurred during the marriage. So at least you don’t have to worry about paying off accounts opened prior to your wedding day.

When a loved one dies, you’ll have enough to worry about without stressing over his or her debts. Fortunately, most of the time you won’t need to open your wallet to pay off outstanding balances.

For advice pertaining to your specific situation, seek out the help of a competent estate attorney or finance professional.

What’s your experience dealing with estate and other business issues left behind by a loved one? Share with us in comments below or on our Facebook page.

Stacy Johnson

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