Who is Responsible for Debts of Deceased Person?

After a relative dies, the last thing grieving family members want are calls from debt collectors asking them to pay a loved one's debts. At the outset, generally, heirs and beneficiaries can inherit assets and not personally inherit the deceased’s debt. However, there are exceptions as explained below.

One common debt is credit card debt. If you obtain a credit card you agree to repay whether you are alive or dead. However, that obligation does not extend to your family, friends or, in most cases, even your spouse. However, those who live in California and other community property states, where property and assets acquired during a marriage are considered jointly owned, may be liable for the debt.

Except as set forth below, your heirs and beneficiaries can inherit assets and not personally inherit debt. However, that does not mean that creditors will not try to collect. Creditors may collect on debts indirectly by filing claims against the probate estate. From an estate administration perspective, debts after death are generally repaid through a person’s estate, whether or not there was a will. In that way beneficiaries or heirs of an estate pay indirectly as a reduction from the amount they would otherwise receive from the probate estate.

A creditor may have a claim against an heir or beneficiary (or executor under certain conditions) directly. For example:

1. Co-signed the obligation. Joint account holders are generally fully responsible for the entire debt, even if all the charges were made by only one of them.
2. Live in a community property state, such as California.
3. You are the deceased person's spouse and state law requires you to pay a particular type of debt, like some health care expenses
4. If the deceased person gave away assets to the beneficiary shortly before dying
5. If the beneficiary absconded with the deceased’s property a creditor might have a claim against the beneficiary.
6. If a beneficiary or other relatives of the deceased have voluntarily guaranteed payments of some kind or assumed liability, such as liability for care given the deceased, they might be held liable for some or all of the debts of the deceased.
7. If he or she does not comply with certain California probate laws an heir or beneficiary who serves as executor or administrator can be held responsible for mistakes made while settling an estate.

Under the FDCPA, collectors can contact and discuss the deceased person's debts with that person's spouse, parent(s) (if the deceased was a minor child), guardian, executor, or administrator. Also, the FTC permits collectors to contact any other person authorized to pay debts with assets from the deceased person's estate. Debt collectors may not discuss the debts of deceased persons with anyone else.

As explained above, credit card debt belongs to the account holder. With few exceptions, heirs and beneficiaries are generally not liable for the deceased’s debts. Also, if there is not enough money in the estate of the deceased, creditors are often precluded from collecting the debt from the estate.

Similarly, in California, if they wait beyond the applicable statute of limitation they may be precluded from bringing a claim. Even so, creditors will often go to great lengths to collect any and all debts owed to them, even from the deceased, through requests from spouses and relatives. Payments on behalf of a deceased relative, however, are voluntary and not required.

A debt secured by the borrower’s real property, such as a mortgage, is not forgiven because the borrower dies. A joint obligor on the loan, including a spouse, remains liable for the mortgage loan debt, even after the death of the other obligor.

A life insurance policy is a contract. In exchange for premium payments the insurer agrees to pay a death benefit upon the insured’s death. Therefore, the life insurance benefits paid to a named life insurance beneficiary does not become a part of the deceased’s estate upon death. In addition, life insurance beneficiaries are not obligated to pay the debts of the deceased.

If you need California or Orange County probate representation, please contact me for a free consultation at (949) 243-0406 or through my online contact form. I will spend time with you to answer your questions.