When someone passes away, it can be an incredibly overwhelming time for their loved ones. However, matters may be made even worse when creditors and debt collectors begin calling regarding funds owed by the deceased. For the loved ones of the deceased, this can be troubling, as there may be uncertainty around who is ultimately responsible for the debts of someone who has passed. In general, surviving family members are not personally liable for the outstanding obligations unless they jointly held the debt or co-signed the debt. If you would like to learn more about who should be paying for a deceased person’s debt, continue reading and give our skilled Butler County estate planning & probate attorneys a call today.
Who Can Be Held Responsible For Paying the Debt?
Note that most debt does not just vanish after the debt holder passes away. Usually, a deceased person’s estate is responsible for paying their debts. After an individual dies, they are known as a “decedent.” Their “personal representative” will distribute the decedent’s assets in accordance with the terms of a will or, if the decedent had no will, Pennsylvania “intestacy” laws. The personal representative may be specified in a will, or if there is no will, an administrator will be appointed by the court.
Prior to allocating assets to beneficiaries, the personal representative must ensure that all valid creditor claims and outstanding taxes have been paid.
Who Pays Debts After Someone Dies
- The estate of the deceased generally repays outstanding debts
- Executors and administrators manage the repayment of debts during the probate process
- Beneficiaries typically do not personally inherit debts
- Creditors can file claims against the estate once probate begins
- If the estate lacks the assets needed to pay debts, the debt may go unpaid
How Does Debt Get Paid During Pennsylvania Probate?
In Pennsylvania, the probate and estate administration process will determine how a deceased’s outstanding debts are handled following their passing. During probate, the executor or administrator (depending on whether or not the deceased has a will) will identify and inventory estate assets, inform creditors, pay valid creditor claims, and distribute the remaining assets to beneficiaries in accordance with the wishes of the deceased detailed in their will.
Responsibilities of the Personal Representative
- Identify, inventory, and value all estate assets
- Inform creditors and review claims on the estate
- Pay funeral expenses and taxes from the estate, when appropriate
- Keep detailed records of all estate-related transactions
- Distribute remaining assets in accordance with the will of the deceased or Pennsylvania intestate law, if no will exists
- Ensure adherence to the Pennsylvania probate process
Probate Debt Overview Process
- File the will with the Register of Wills in the appropriate Pennsylvania County
- Open probate and receive Letters of Testamentary, granting you the legal authority to act on behalf of the estate
- Inform beneficiaries and creditors
- Pay estate debts
- Distribute remaining funds to beneficiaries or heirs
- Close the estate once probate is completed
What Happens if the Estate Does Not Have Enough Money to Pay Debts?
It’s not uncommon for the family of a deceased individual to worry about assuming personal liability for debts in the event the deceased has considerable financial obligations. However, if there are not enough assets to satisfy these debts, the estate may be deemed insolvent.
In many instances, creditors only receive partial repayment, if at all, depending on the value of the estate and the priority of claims in accordance with Pennsylvania law.
What Is an Insolvent Estate?
- An estate is deemed insolvent when the debt it owes exceeds the value of the assets held in the estate
- Estate assets may need to be liquidated to satisfy debts
- Pennsylvania law determines the order in which debts are paid
- Low priority creditors may receive only a partial payment, if any payment at all
- Beneficiaries may receive less than anticipated if assets must be used to repay debts
Important Information About Credit Claims
- Creditors typically only have a limited amount of time to pursue a claim against the estate
- Executors must review claims carefully before distributing assets
- Improper distribution of estate assets can expose executors to legal liability for breach of fiduciary duty
- The probate court may become involved in disputed debt situations
Are There Any Exceptions?
A deceased person’s estate is typically liable for the person’s debts, though there are a few important exceptions.
Joint Account Holders
Recognize that two or more people can jointly hold bank accounts and credit lines. The holders of the account share responsibility. In the event that one holder passes away, the other holders are liable for any related debt. Because of this, jointly held credit card debt is one kind of debt that you will be accountable for if a co-holder dies.
Important Clarification Between Authorized Users and Joint Account Holders
Also, keep in mind that there is a distinction between an account holder and an authorized user. An authorized user can use an account, but is not accountable for any liabilities. On the other hand, an account holder is responsible for his or her liabilities.
Cosigners
If an individual borrows money, rents an apartment, or takes on another financial obligation, they may be instructed to have a cosigner. This provides peace of mind that the primary signer’s obligations will be satisfied in the event they default on payments. If the primary signer does not keep up with their obligations (for instance, when they pass away), the cosigner is on the hook for the outstanding debt.
Spouses in Community Property States
In some states, property owned by a married couple is referred to as “community property.” Typically, this indicates that each spouse, with some exceptions, has equal ownership in all property obtained during the course of the marriage. The result is that any debt obtained during the marriage remains the responsibility of the surviving spouse.
What Property Is Protected From Creditors?
It’s important to understand that certain assets may be deemed exempt from creditor claims. Typically, these assets will pass directly to beneficiaries and are not considered part of the probate estate
Assets That May Avoid Probate or Creditor Claims
- Certain life insurance policies with named beneficiaries
- Retirement accounts with designated beneficiaries
- Payable-on-death bank accounts
- Transfer-on-death investment accounts
- Jointly owned property with survivorship rights
- Certain trust assets
Contact an Experienced Butler County Estate Planning Attorney Today
Navigating outstanding debts following the passing of an individual can be incredibly complicated. As such, establishing a comprehensive estate plan and seeking legal advice when administering an estate on behalf of a loved one is critical. At Heritage Elder Law & Estate Planning, we understand how overwhelming these matters can be, especially when grieving the loss of a loved one. That is why we are committed to helping you through these difficult times. Contact us today to learn how we can assist you.
