When a person passes away, heirs might wonder if they are liable for his or her debts. In most cases, the answer to that question is no. However, there are certain circumstances where a person’s survivors might be held responsible for an unpaid balance.
Creditors may be able to ask for payment on an outstanding balance if the heir was a joint account holder. It may also be possible for a creditor to ask for payment if the heir was a cosigner on a loan. Those who are widows or widowers in community property states may be forced to pay for a deceased person’s unsecured debt as well. Furthermore, executors of an estate may be held responsible for outstanding debt if they misspend money held by the estate.
In other cases, creditors may have to write off their losses if there is not enough money in the estate to pay the entire balance. For secured debts, the creditors may seize the asset if there is not enough money to pay off the loan or outstanding balance. In addition, survivors who are authorized users of a deceased person’s credit card should ask for a new account in their own name. Using the card after the account holder dies is considered fraud.
As this shows, considering outstanding debts in addition to assets when engaged in will planning may be an important step to take when attempting to ensure that heirs benefit from the execution of an estate. Individuals who are interested in developing a strategy that attempts to maximize the payout for heirs and beneficiaries might consider discussing the matter with an estate planning attorney.
Source: The Huffington Post, “Will Your Kids Inherit Your Debt?”, Jason Alderman , September 03, 2014