Are you responsible for the debts of your loved ones when they die?

Losing a loved one is always difficult enough but when he or she leaves behind a mountain of debt it can overwhelming. When a person dies, his or her debts do not go away. Instead, all assets and debts are considered part of his or her estate and the assets must be liquidated to pay off the debts. If your loved one left a will, it will designate an executor or administrator who is responsible for managing the estate. That person would be the one to sell the assets and pay off the debt. If there is no will, the court may appoint an administrator or representative to play that role.

There are two critical steps that the executor should take immediately if you know or suspect your loved one has outstanding debt. First, contact any known creditors and the three big credit reporting agencies (Experian, Equifax, and TransUnion) and notify them of the death as soon as possible. This will help prevent identity theft of the deceased and reduce unwanted calls from debt collectors. Second, the executor should request a copy of the deceased’s credit report. This will list all outstanding debt so you have a clear picture of what the estate owes.

It is important to hold off on splitting up the deceased person’s belongings until all the debts have been paid off. If selling the deceased persons assets does not cover the debts then, in most cases, relatives of the deceased person are not responsible for the outstanding debt. The only exception is if you are jointly liable for the debt. For example, if you co-sign on a loan or share a joint account, you are still responsible for paying that off. In some states, state law requires the deceased person’s spouse to pay health care expense or other specific debts.

Even though you may not be responsible for your loved one’s debts, you may still be hearing from debt collectors. Legally, collectors can contact the deceased persons spouse, parent(s) (if the deceased was a child), guardian, executor or administrator to discuss the deceased person’s debts. If you are getting unwanted calls from debt collectors, tell them that you do not want to be contacted and direct them to the executor of the estate. You may also want to send a letter stating that you do not want the collector to contact you again. Be sure to keep a copy of the letter and send it by certified mail and pay for a return receipt so that you can document when the creditor received it.

If you are left to settle the debt of a deceased loved one or are worried about managing the estate of an aging parent, contact the Miles Tax and Advisory team. Our financial experts can review your individual situation and provide you with a comprehensive estate planning strategy. Please feel free to give us a call at 410-685-1406 or by email at info@miles-tax.com.