Monday, July 21, 2014
When someone dies, their assets become the property of their estate. Before an estate can distribute assets to beneficiaries, each estate is obligated to pay all debts, costs, taxes and other liabilities due.
Yet who manages this? When writing wills, it is usual to appoint an executor to handle the tasks associated with an estate. Under “fiduciary duty,” executors are legally required to act with complete and transparent good faith while carrying out the deceased’s wishes.
If no will is written, a state’s probate court can appoint an administrator, who has the same powers as an executor. While there is a hierarchy of people who are asked to take on the role, nobody can be forced to be an executor or administrator unless they want to be.
When debt is passed on there are two key things to understand: (1) The debt does not die with the decedent, and must usually be paid; (2) nobody can inherit debt. If the estate does not have enough money to cover debt, lenders will write off their losses. With some rare exceptions, heirs are not liable for the deceased's debts. These exceptions include: surviving spouses in community property states, adult children of a late parent who could not pay for his or her long term care, and heirs legally responsible for managing the estate.
See Peter Andrew, What Happens to Card Debt When Someone Dies, Desert News, July 18, 2014.