When a loved one dies, the last thing family members want to do is field calls from debt collectors. If you are the personal representative (executor) of the estate or trustee of your love one’s revocable trust, chances are you will have to deal with your loved one’s debts and creditors. But is it your responsibility to pay the debts out of your own pocket? Here are five things surviving family members need to know:
First, the decedent’s estate is responsible to pay off the decedent’s debts before distributions are made to the estate beneficiaries. This is true in almost all states, including Florida. If the personal representative/trustee makes distribution before clearing all of the decedent’s creditors as provided under the law, however, then the personal representative/trustee may be personally liable to pay out of his or her own pocket. The estate beneficiaries are generally not responsible for paying off the decedent’s obligations.
Second, there is an order to how debts must be repaid. Taxes, funeral expenses, and professional fees to administer the estate are paid first. Next come secured debts such as mortgages or pledged asset loans. Unsecured debts (such as credit card bills, medical expenses and the like) are paid last. If the estate does not have enough money and the personal representative/trustee has followed the correct debt payment priority, then at least some of the creditors will be out of luck, or they may only receive a portion of their money in the form of repayment.
Third, Florida exempts certain assets from the claims of creditors. This includes the decedent’s homestead (except secured debt such as a mortgage which remains in place), up to two automobiles owned for personal use, life insurance and certain retirement accounts. One exception to this rule includes taxing authorities, such as the IRS or state departments of revenue, who may be able to collect against those assets. The homestead exemption only inures to the benefit of heirs at law, such as a surviving spouse and/or children. If the homestead is left to a friend, for example, the equity of the homestead could be used to satisfy creditors if no other assets are available for such purpose.
Fourth, a guarantee of the decedent’s debts may leave you liable for them. If, for example, Father guarantees Daughter’s student loan debts, and Daughter dies, then Father will likely have the responsibility to repay the lender. Along those same lines, while joint accounts may typically fall outside of the probate process, where a beneficiary is added as a joint-account holder but did not contribute any money or assets to the account, then the account may remain an asset subject to the claims of the decedent’s creditors.
Fifth, if you receive debt collection calls you may be able to ignore or report them. You should determine if the claim is valid, and if so, direct the claimant to the attorney for the estate who should be retained to provide the creditor with a proper notice as required by law. If the creditor fails to file a timely claim, it could be forever barred from making a claim against the estate or against the estate’s beneficiaries. If creditors are harassing you, then you can report them to the appropriate governmental agencies. The Consumer Financial Protection Bureau also has sample letters on its website you can use, or forms to file a formal complaint.
There are exceptions to all of these general rules, so consult with your loved one’s estate attorney before acting. Generally speaking, don’t continue to use the decedent’s credit cards after his or her death, as sorting out what you might be liable for and what the estate could be liable for becomes fraught with legal difficulties.
Take solace that in most cases you are not responsible for your loved one’s debts, so long as you follow the proper legal protocols.