Who Has to Pay a Deceased Person's Debts?

A few months ago, I blogged about rising debt amongst the elderly and the fact that a surprising number of people weren’t worried about repaying it while alive.  So, what ends up happening with the debt?

An individual’s debts don’t just disappear when he dies – they remain outstanding and need to be paid before the estate can be distributed.  A trustee has the obligation to identify the deceased’s liabilities and discharge them. However, there are times when a deceased’s assets are insufficient to cover the outstanding debts. Then what?

If there isn’t enough money in an estate to cover all the debts, then the estate will be insolvent.  The funds that are available will go toward payment of the debts, but the debts won’t be paid in full.  It is important to understand, however, that payment of debts takes priority over the rights of the beneficiaries to their inheritance – this means that the beneficiaries aren’t entitled to receive anything until the debts have been discharged and if the estate funds aren’t sufficient to pay the debts then the beneficiaries get nothing.

It is also important to understand that the obligation to pay the debts falls to the deceased’s estate.  The deceased’s family members are not responsible for kicking in funds if the estate is insolvent and the executor isn’t required to reach into her own pocket either. 

Unfortunately, debt collectors don’t always see things that way.  A couple of years ago, the New York Times reported that some collection agencies had taken to calling the deceased’s next-of-kin and imploring them to pay outstanding bills, even though they had no legal obligation to do so.  If this happens, it’s generally best to stand your ground – unless you co-signed for the debt or have received money from an estate before the debts were discharged, there’s no reason to pay.  

Comments (2)

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Showey - March 14, 2011 9:48 AM

Nice post Megan. The ability to "will someone a debt" is a staple of sitcoms and stand-up routines, but as you've pointed out here, it has no basis in reality.

Jen - October 17, 2011 10:46 AM

What if you are a benifiacry through the employees life insurance and rrsp and defined contruibition plan. Do you still have to pay the debt from that? or still whatever is left in the estate? How is the benificary responsible for debt from the spouse who passed away? Some people dont even know they are a benefiecary.

My husband passed and we never had any joint accounts-he is a few thousand in the bank and most of his credit card companies just closed the account except one...
I was left the benicary for his employee life insurance and his rrsp/defined contruibution plan from his employer...do I have to use that to pay his debt?