Credit cards, college loans, mortgages, and other common lending techniques leave many people in debt at some point in their life. Others have unexpected medical needs that cost more than they can afford. When you are planning your estate, you may worry about what happens to debt after someone’s death.
For estates distributed under the supervision of the California probate courts, the executor or administrator will deal with debts. The court appoints an executor, if the deceased had a will, or the administrator, if no will, to locate, inventory, and distribute the estate’s assets. Along the way, the executor often locates debts owed by the deceased person. The court will require the executor to provide notice to creditors so that they can make claims on the estate’s assets.
Creditors who receive the notice will make claims to the executor for the amount owed to them. If a claim is approved, then the estate’s money will be used to pay the creditor. If a claim is denied, the creditor does not get paid and could decide to sue the estate to recover the money. Sometimes the estate does not have enough assets to pay all creditors. California has rules about how to distribute the existing assets, often resulting in partial payments to creditors.
Unfortunately, if an estate does not have enough money to pay all debts, then the heirs inherit nothing. The creditors usually write off the debt as uncollectable. In most cases, heirs and relatives will not be held liable to pay the deceased person’s debts. There are a few exceptions, such as:
Spouses’ debt acquired during the marriage is community property, so the surviving spouse is responsible for paying it off. Surviving spouses can take over mortgages without having to pay them off.
For those concerned about debt, know that certain assets do not go through probate. That means the executor may not be able to use the assets to pay estate debts. In California, assets that do not go through probate include retirement accounts like IRAs, trusts, pay-on-death bank accounts, property owned by joint tenancy, and more.
If you have questions about planning your estate in light of your significant debt, we recommend speaking to a qualified California estate planning and probate attorney.
Worried about leaving debt behind? Angela Klenk, Esq. and the team at Beach Cities Estate Law couple personalized attention to your estate plan with big law firm experience for a winning combination to give you peace of mind. To schedule a case evaluation, visit Beach Cities Estate Law online or call Angela’s office at (424) 400-2125.