When a person passes away, it is common for them to have some outstanding debt that has not yet been resolved. Many older adults try to address debt in advance, such as paying off a mortgage or other major obligations, to reduce the burden on family members.
However, they may still owe smaller amounts, such as credit card balances, or have financial obligations to the government, including income taxes or property taxes for the final year of their life. So who is responsible for these outstanding debts? Do family members need to worry about taking on debt and suddenly having new financial obligations they did not agree to?
A job for the estate executor
Typically, debts are paid during probate, using funds from the estate. This means the debt is not inherited by family members.
This responsibility generally falls to the estate executor, who reviews the estate planning documents, inventories and gathers remaining assets and oversees the distribution process. It is their job to communicate with creditors and government agencies to pay outstanding balances.
In most cases, the executor is required to address debts before distributing assets to beneficiaries. For example, if an estate includes $100,000 to be divided between two adult children and also has $10,000 in credit card debt, the executor would pay off the debt first and then divide the remaining $90,000 between the beneficiaries.
This is a simplified example, but it illustrates why it is so important for those involved in the probate process to understand their obligations and the legal steps that must be taken. Having experienced guidance will help.
