Who pays for debts when someone passes away?

On Behalf of | Apr 21, 2021 | Estate Planning

Individuals need time to heal and deal with their loss when they lose a loved one. While many people respect another person’s request for time to grieve, that often isn’t the case with ruthless and unscrupulous debt collectors. Some creditors may even continue to push for payment once told that the account holder has passed away.

There are laws to protect loved ones from having to pay off a deceased family member’s debts. There are limited instances in which a debt collector will go after an heir to collect a debt from them. This often happens when the heir is a joint account holder or a co-signer.

What happens if there isn’t another account holder?

Debt collectors may be able to file a claim against the decedent’s estate in probate court if there isn’t another account holder to pursue. This is generally only a viable option if the estate has remaining assets left in it.

Some people shield their assets from debt collectors by using trusts. A popular choice for doing so is funding an irrevocable trust. Trustors don’t have access to assets placed into these. In this instance, heirs will generally receive anything that they’re due upon the trustor’s death.

Revocable trusts don’t offer any creditor protections.

What should you do when asked to pay a deceased relative’s debt?

Unless you’re the joint account holder or a co-signer on a decedent’s account, then you aren’t liable for the debt. You can provide them with the contact information for the personal representative administering the estate. Don’t give them your personal information unless you’re fully aware that you’re responsible for the debts.