When a loved one passes away, your focus should be on grieving and honoring the life of the person you’ve lost—not on paying off inherited debt.
Thinking about a loved one’s outstanding debt is the last thing on anyone’s mind when a family member passes away. Unfortunately, many people find themselves dealing with creditors and figuring out how to pay their loved one’s debts as they grieve. To avoid this situation, it makes good financial sense to consider these matters ahead of time.
Who’s Responsible for Outstanding Debt?
Generally, the deceased person’s estate assets are used to satisfy creditor claims before being distributed to beneficiaries. If estate assets are insufficient to pay all outstanding debt, the estate is considered insolvent, and state law prioritizes the payment of the deceased person’s bills with the available assets. In some cases, however, outstanding debts may not fall to the estate:
How Are Different Types of Debt Handled?
Don’t Be Bullied
Family members of deceased debtors—and all consumers—are protected by the federal Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices in attempting to satisfy a debt. Under the FDCPA, collectors can contact the deceased person’s spouse, guardian, executor, or administrator to get their contact information, but they are not allowed to discuss the details of the debt. You have the right to control your interactions with these collectors. For more information, visit the Federal Trade Commission’s website.
Know Where You Stand
Inherited debt can be a complex issue. If you find yourself in this situation, seek advice from your financial advisor and an attorney who can guide you through the probate process and work with debt collectors. Although dealing with a loved one’s death is never easy, getting your questions answered and protecting your inherited assets may make the situation a little less stressful.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go togreat lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.