6 minute read

Debts and Probate: Understanding Your Financial Responsibilities

Find out how to deal with a decedent’s debts before and during the probate process, and whether you are personally liable for a loved one’s debt.

Mitch Mitchell

Mitch Mitchell, @MitchMitchell

Product Counsel, Legal, Trust & Will

When a loved one passes away, they leave behind their worldly possessions that must be sorted out. In most cases, unless they had set up a Living Trust, the probate process will be required. This is a legal proceeding through which the decedent’s debts are paid off before their remaining assets and property can be distributed to beneficiaries. What you may not know is that the process of dealing with a decedent’s debts can start even before probate officially begins. Keep reading to find out about common estate debts, the priority in which they should be addressed, and how to pay them off.

Common types of decedent debt & liabilities 

Before we begin, it’s important to understand that it’s absolutely common for an individual to pass away with a certain number of debts and liabilities. That’s because no one plans ahead for their day of passing and neatly wraps up the various commitments and activities of their personal life. 

Therefore, addressing a decedent’s debts and liabilities is a normal activity that is a part of the probate and estate closure checklist. 

Here is a list of common types of debts and liabilities left behind by someone who passed away:

  • Utility bills

  • Cell phone bill

  • Entertainment and other subscriptions

  • Home mortgage

  • Credit cards or lines of credit

  • Personal loans 

  • Loans taken out against retirement savings or life insurance 

  • Student loans

  • Condo or HOA fees

  • Property taxes

  • Income taxes (Federal & State)

  • Auto Loans

  • Storage unit fees

  • Business loans and fees

  • Medical bills

  • Burial or cremation expenses

Which debts should be paid first?

When it comes to debt, everyone leaves some behind. You would be hard-pressed to find an estate with absolutely no debts. Even if the deceased somehow paid off every single one of their bills before their passing, it’s still likely that they will have medical bills left over from crossing over. The estate itself also usually has expenses to be paid, such as burial or cremation expenses, as well as a final income tax filing. 

If you are the Executor or Personal Representative of the estate, you are responsible for paying these debts and liabilities, however many there may be, out of the estate. This must take place before any remaining property can be transferred to the beneficiaries of the decedent. To get started, it’s helpful to know the order in which debts should be paid. The probate court will give creditors a set amount of time to come forward and place a claim. You will likely be able to identify several liabilities before the probate process even begins, but then through the probate process you’ll be able to gather a finalized list of outstanding liabilities to deal with.

The first payments you should make are related to the administration of the estate. For instance, you may have purchased Trust & Will’s Probate to better navigate the probate process, or hired an accountant for estate valuation, or partnered with an auction house to liquidate some valuable antiques. All of these fall into the category of estate administration expenses that must be paid out first.  After these are paid out, then burial or cremation and funeral costs come next. 

Some states allow for a family allowance exemption. While this isn’t the final sum that will eventually be transferred to beneficiaries after debts are paid and the estate is settled, this is an allowance that can help support a family financially through the probate process. If the state allows this exemption, then this is paid out before any debts are settled and are considered an estate expense.

After estate expenses are paid, such as professional services or funeral costs, the Executor can start addressing some priority liabilities. Here are some examples of priority payments that should be paid out before any debts:

  • Medical bills

  • Hospice and nursing facility expenses

  • Outstanding taxes resulting from Final Tax Returns  (Local, State & Federal)

Once these priority debts are paid, then other categories of debt can be taken care of. Examples include credit card bills, personal loans, and mortgage repayments. Once all debts have been paid, the estate can transfer the remaining assets and property to its beneficiaries before it is finally settled and closed. 

How to start paying off debts: before probate

In the next two sections, we will address the “how” of paying off a decedent’s debts. This section explains, perhaps to your surprise, that you can actually begin to pay off certain liabilities before the estate is even probated. Not only is it allowed, doing so can be advantageous. It can help speed up the probate (or make it more efficient, at least) and help prevent certain liabilities from earning interest or getting dinged with late fees from lack of payment.

First, take inventory and make a list of the decedent’s debts and outstanding bills. Discussed earlier, after probate is opened, more creditors may come forward in which case you will need to update your list. However, the list as-is will help you get started. 

Once you’ve created your list, divide the items into these two buckets:

  1. Liabilities that can be paid off in full

  2. Liabilities that will continue accruing during probate

Ongoing liabilities that continue accruing through probate include estate administration expenses, any mortgages or housing fees, property taxes, and storage fees. These are practical fees and expenses that you must keep current until the estate is closed. Stay on top of these payments before probate begins, and until it closes.

Final bills can typically be paid off in full using estate assets. These include income taxes, loans, credit card balances, and bills for services or utilities that are terminated. Beneficiaries should be careful not to use personal funds to pay these bills. Instead, they should be paid by the estate representative through the process of settling the estate.

Of course, there may be some gray areas in which your best judgment will need to be used. For instance, let’s say that a beneficiary knows that they will be inheriting their parent’s home and thus the outstanding mortgage. They may choose to start paying down the debt so that it does not accrue interest or late fees needlessly. 

Paying off decedent’s debts: during probate

Otherwise, the Executor or Personal Representative of the estate is responsible for paying administrative expenses and decedent’s debts throughout the probate process. 

If any of the estate beneficiaries have paid any of the decedent’s debts before probate had begun, then the Executor should reimburse them out of the estate. Discussed earlier, one key exception is if a beneficiary had paid the debts related to a piece of property or real estate that they were to inherit. If they would have assumed the mortgage or loan regardless, they typically will not be reimbursed. 

In this case, it is important to be aware of the Garn-St.Germain Depository Institutions Act of 1982. In a nutshell, this law protects families so that lenders cannot foreclose on a current mortgage if the ownership is changing hands due to the death of the owner.

The Executor also has the task of liquidating and selling property as needed to satisfy any outstanding debts or estate expenses. They are the only party authorized to do so until probate closes, even though a beneficiary may feel tempted to sell something that they believe to have claim to. Typically, the Will includes instructions for selling any property. Otherwise, the Executor must first seek permission from the court, as well as the written consent from the surviving spouse and legal heirs. This ensures that no valuable heirlooms or desired items are sold. 

Estate property are typically sold through estate sales, probate sales, and auctions.

Decedent’s debt FAQ

Paying a loved one’s debts that they left behind can be an intricate process. Here are some answers to questions that may come up as you gather information and begin to take the steps of repayment.

Am I personally liable for paying the decedent’s debt?

No. Technically, the only entity legally liable for paying a decedent’s debt is their estate. It is expected that an estate liquidates property to raise enough cash to pay any debts owed by the decedent. 

Even if you are dealing with an insolvent estate (when there are more debts than assets), you typically won’t be required to pay for any debts out of your own pocket. 

The probate court will provide you with a priority list for you to follow, and to pay using estate assets. You might end up finding yourself personally liable if you accidentally pay back any low-priority creditors. 

In general, beneficiaries aren’t personally liable for a decedent's debts unless they specifically cosigned or are otherwise legally required to pay back the loan or debt. The rules are slightly different, however, for surviving spouses of community property states. You may automatically inherit property outside of the probate process in these states and thus may be liable for any amount owed to creditors.

Who is responsible for paying the decedent’s bills?

The responsibility of paying a decedent’s debts typically falls on the named Executor of the estate, or otherwise appointed Administrator. They do this by organizing a list of the decedent’s liabilities, ordering them by level of priority, and using estate funds to begin paying off these debts in order. They must complete this step before they can distribute any remaining funds to the estate’s beneficiaries. In some cases, it may become necessary to liquidate estate property to raise cash for the purpose of paying off debt.

Can I inherit debt?

No, in general you cannot inherit debt unless you specifically cosigned on a loan or were otherwise legally liable. 

When an individual passes away, their unpaid debts pass to their estate, as do they property and assets. Any debt is paid using these estate assets. Property can be liquidated to raise cash as necessary. However, when there are no funds or property left, any remaining debt is typically left unpaid. In most cases, no one else will be required to pay debt, nor do they inherit the debt.

What happens if the estate doesn’t have enough assets to pay off debt?

As a beneficiary, you can breathe a sigh of relief. Typically, as a beneficiary of an estate, you won’t inherit any debts that cannot be paid off. Mentioned earlier, you are not personally liable for paying any outstanding debts. This can be true if the estate didn’t have enough assets to pay all of its debts during the probate period, or if new debts were discovered after the probate period has ended. 

Unfortunately, however, if the estate cannot pay off all of the decedent’s debts, this also usually means that you won’t have anything to inherit. By law, an estate must pay as many outstanding debts as possible, even if it means liquidating physical property to raise cash. The probate court will provide guidance on which order debts should be paid. They can even reduce gifts specified in the Will to ensure debts are paid off. When an estate has more debts than assets, it is insolvent. The estate will pay off as much debt as possible, and the outstanding amount will remain unpaid. Even though you may not inherit any assets, at least you won’t inherit any of the unpaid debts either.

Are there any assets that are protected from creditors?

The best way to protect assets from creditors is to transfer them to a Trust. While creditors may be able to garnish Trust assets in specific situations, they are largely protected so that they may pass on to beneficiaries instead. These protected assets are called “exempt property,” which we explain in detail.

Understand your financial obligations in probate

Navigating the probate process is understandably challenging. It’s a complex system and individuals are typically brand new to it when they first encounter it. Knowing your obligations, including your financial responsibilities regarding your loved one’s debt, can be tricky. At Trust & Will, we understand that navigating the probate process can be overwhelming– but we're here to help.  Our plans provide clear, county-specific guidance and support from probate experts so you can stay on top of the process. Learn more about our probate offerings.

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