Will Your Family Inherit Your Debt?
Posted: Oct 30, 2019
According to Northwestern Mutual’s 2018 Planning and Progress Study, the average American has approximately $38,000 in personal debt, excluding mortgages. Research has also shown that Americans have approximately $62,000 worth of debt at the time of death. Those are some terrifying numbers.
When someone passes away with incurred debt, both the assets and the debt become part of the estate. The executor of the estate is responsible for ensuring your debts are paid, prior to the assets being divided amongst heirs and beneficiaries.
While laws vary by state, California is a Community Property state. This means that all property AND debt acquired during the marriage is equally owned by both spouses. Of course, it goes without saying that any and all accounts that were jointly owned would become the liability of the surviving party, even in states without the community property law. Some states allow that if credit card debt was solely in the deceased person’s name the debt would not be carried over to the estate. This is not the case in California. As the state is a community property state, all debt, including credit cards that were not jointly owned would become the liability of the surviving spouse.
Let’s assume that the deceased party was unmarried at the time of death but has surviving children. A child, who is at least 18 years old, may still be responsible for repaying the debt of their deceased parent. What about unpaid medical expenses for end-of-life care? Yes, your child would also be responsible for those unpaid medical bills as well. More often than not however, the law deeming a child responsible for those unpaid bills is rarely enforced.
What if You Have More Debt Than Assets?
If you have less assets than you do debt, typically creditors cannot hold relatives liable for the remaining debt (though they may still try). However, in California, this may not always be the case as spouses may fall under one of the exceptions to the general debt liability rule as a result of the community property law.
According to California law, any creditors that seek to collect an unpaid debt by the deceased will have to file a claim to recoup the money owed. Creditors have 60 days to file a claim starting from when the executor notifies them that the estate is in probate OR within four months from the date the court authorizes a representative to act on behalf of the estate, whichever gives the creditor the most time. If it is determined to be a legitimate debt, the executor of your estate must pay the debt.
In case there aren’t enough assets to repay all of the incurred debt, the State of California will determine an order of precedence in which the debts must be repaid. Any federal debt, such as income taxes, back taxes, student loans, etc. will be paid first. Child support comes second in determining the order of precedence. If there aren’t enough assets to pay all debts, the estate becomes insolvent, meaning there will be nothing left for any beneficiaries to inherit.
Your executor and family have the right to dispute any claims made by creditors, but that will likely require evidence such as receipts or account statements and must be presented in probate court. Hence, it is in everyone’s best interest to work with a qualified probate attorney in Los Angeles who can assist in ensuring the best possible outcome.
George Anderson is a freelance writer, blogger, and entrepreneur. I love reading, outdoor activities, traveling and staying current with new trends