Handling a Decedent’s Debts

Busting the Myths Around Decedent Debts

Have you ever wondered what happens to decedent debts when a person dies?

Many people incorrectly assume debts go away. Some assume the family is responsible for the decedent’s outstanding debts. Neither is correct.

When someone dies, their debts do not automatically disappear. Instead, the decedent’s estate—not the family—is typically responsible for paying valid obligations. The estate includes the assets the decedent owned in their individual name at the time of death. The executor named in the will, or an administrator appointed by the court, manages this process.

Responsibility for Debt

Family members are not held personally liable for the decedent’s debts unless they were joint account holders, co-signers, or otherwise contractually responsible during the decedent’s lifetime. There are several kinds of debts – secured debts, unsecured debts, and debts that can be legally ignored. Each kind of debt is handled differently.

For instance, if there are Secured Debts, such as mortgages or auto loans with collateral, the estate or heirs can continue payments or refinance. Otherwise, the creditors may enforce their security interests through foreclosure or repossession.

Unsecured Debt includes credit-card companies and medical providers. With these debts the probate claims process must be followed. The creditors may file claims against the estate, but they cannot seize property without a court judgment. And, if the estate lacks sufficient assets, unsecured debts are usually discharged, and heirs are not responsible.

Debts You Can Legally Ignore

In some cases, the estate may have more debts than assets. This means the estate is insolvent. In this situation, unsecured debts simply go unpaid after proper notice and probate procedures. Creditors cannot pursue heirs for these balances.

It’s important to note that property held in a properly structured trust bypasses probate. Additionally, assets held in the trust are generally not available to satisfy unsecured creditors of the decedent. However, if the trust was revocable or improperly funded, creditors may still reach assets.

Handling a decedent’s assets is more easily accomplished with a properly structured trust. The key steps are as follows: identify and inventory assets, notify creditors, pay valid claims in statutory order, and protect heirs from unnecessary collection pressure by understanding that the estate—not the family—pays the debts.

If you have been considering creating an estate plan and want to discuss how a trust can protect your assets for your heirs, give my office a call at (470) 235-7868.

Looking to find an experienced estate lawyer in the Georgia area who is skilled in asset protection and estate plan preparation? Shannon Pawley is an attorney in Georgia with expertise in estate planning and asset protection. Shannon can provide assistance with creating an estate plan to include making a will and how to establish a trust properly. If you have questions about asset protection or questions about making an estate plan, reach out to Shannon and she will be glad to help answer all the estate planning questions you might have!