Handling debt when a loved one dies can be very stressful. The duty of the Executor or Personal Representative named in the Last Will and Testament or the Successor Trust named in a Trust is to settle the estate of a deceased person. This doesn't just mean distributing assets to beneficiaries, but also settling debts as well. Here are some tips on how to handle unsecured debt after a loved one’s death.
1. Determine if You are Responsible: Generally, you are not legally obligated to pay your loved one's debts from your own money unless you co-signed a loan or were a joint account holder. The debts get paid from your loved one's estate. If you are uncertain about a debt and have received a notice, you have the right to request debt verification that the creditor is legally obligated to comply with and if debt verification is not provided, then that debt cannot be collected.
2. Send Verified Creditors a Copy of the Death Certificate: This serves as proof that your loved one is deceased. The credit company may discharge the debt or work with the Executor to reduce the amount and/or create a payment plan.
3. Consult an Estate Lawyer: If the estate is insolvent (debts exceed assets), you may need to go through probate court. A lawyer can advise you on state laws regarding insolvent estates.
4. Don't Panic if Billed: It's common for creditors to continue billing for a period after death before updating records. Don't pay from your funds unless you are a joint owner of the debt. Dispute with the death certificate.
5. Prioritize Estate Assets Sensibly: Use assets to pay taxes, secured loans, and essential debts (such as funeral costs) first before paying unsecured debts like credit cards if the debt is not discharged after providing a death certificate.
6. Report to Credit Bureau: Reporting to Credit Bureau agencies that a loved one had died, freezes their credit, so that fraud cannot occur under a deceased person’s social security number and more debt is not accrued.
If you are dealing with a loved one’s debt, the key is to communicate with creditors, understand your personal liability, and properly prioritize the estate assets to address high-priority debts if possible. If a credit company states that they will discharge the debt, try to get something in writing. An estate lawyer can provide invaluable guidance in navigating these difficult times.
The biggest gift we can leave for our loved ones is less burden by having a good, organized plan. If you have debt and you are concerned about passing the burden of debt on to your loved ones, let’s come up with a plan together to consider debt and make sure you have the right helpers in place in the event of disability and death.