When you pass away, what happens to your bills? Unfortunately, they live on, and one of the tasks that takes place in probate, the legal process that administers an estate when someone dies, is the payment of debt of the deceased.
So who is tasked with this chore? Your estate’s executor handles this and many other duties during probate. Other tasks that take place during probate include:
- Assets are inventoried;
- Creditors are located and notified of the death;
- Beneficiaries (if there was a will) or heirs (the term normally used when there is not a will) to the estate are located and notified of the death;
- A bank account is opened for the estate to get the bills paid; and
- A tax return for the estate is filed.
Distributions to the estate’s beneficiaries are not made until the debt is paid. If there is not enough liquidity, such as cash in bank accounts, to pay off the bills, property is normally sold to cover the debt. Property that avoids probate is not subject to this process, for instance, a 401K account that has a named beneficiary would not be probated.
Unfortunately, debt does not disappear when the debtor passes away, but one positive aspect of probate is that the estate is settled, meaning creditors cannot later come after family members, unless there was a joint account, for the debt in most cases.
One of the important aspects of estate planning includes ensuring there is enough cash in the estate to pay debt, along with funeral expenses and estate administration expenses. There are several estate planning tools that can help a family put together a comprehensive plan that addresses these issues. An estate planning attorney can work with you to produce one that meets your family’s specific needs.