5 Things To Know About Your Debts When You Die

Posted on: 26 July 2022


Most Americans have debts and obligations. What happens to these when you pass away? Who is responsible for them? And who isn't responsible? Although debt isn't a fun subject for most people to discuss, it's an important ingredient in managing and settling your estate. Here are a few of the most important things to know about it. 

1. Your Family Doesn't Have to Pay

One of the most important aspects to understand about passing away with debt is that your family is not generally obligated to pay your debts. Just because they are your parents, children, siblings, or even spouse doesn't automatically make them financially liable. Sadly, though, creditors may try to convince them to do so. 

2. Your Co-Borrowers May Be Liable

Who might be liable for your debts? In general, this would be co-borrowers or co-signers who signed legally binding contracts for the debt. However, the situation can be complex because your estate may be able to settle some or all of the debt once its finances are tallied up and verified. The estate executor may continue to make good on payments until this is completed. 

3. Your Executor Pays the Bills

Who physically writes checks for your bills after your death? The executor or personal representative. Probate court grants this person the legal authority to manage your money for the estate. However, this doesn't mean they are personally liable for any debts. As long as the executor handles the estate in a responsible way, they are generally free from personal financial responsibility. 

4. Your Heirs See Reduced Distributions

The good news is that your family and heirs are not directly responsible for most or all of your debts. However, they are still affected. Your debts and obligations must be cleared up before distributions can be made to heirs. That means that settling debts will reduce the amount left for heirs. Depending on your debts, it may even leave nothing for heirs. 

5. Your Accounts May Be Safe

It's important to understand which of your assets may be used to pay your bills and which may not. Some assets, such as bank or brokerage accounts, generally have beneficiary assignments that allow them to pass outside of probate. Specific bequests of individual assets may also exempt them from liquidation. And joint assets with a spouse may be partially (or entirely) excluded, depending on state law. 

Where to Start

If you have significant or complicated debts—including secured debts, co-signers, or joint debts—one of the most important parts of estate planning is knowing what will happen to them. Start by learning more in consultation with an accountant who specializes in estate planning and management in your state. Make an appointment today to begin making the best decisions for your loved ones.