How Is Debt Handled After Someone Passes Away?

Some people are able to plan ahead and pass away without any debt. They pay off all outstanding obligations in advance so that their family members don’t have to deal with it. They may even set up funds to cover funeral costs and things of this nature.

In most cases, however, people will have at least some debt they haven’t been able to address. Some people pass away unexpectedly while they still have car loans, student loans and mortgages.

Even those who die in a fashion that isn’t so sudden may still have credit card bills, utility payments, property taxes, income taxes and many other final payments that have to be made after their passing. How is this outstanding debt handled?

The Estate Executor

Ideally, the estate covers it. The estate executor is tasked with making an inventory of all assets and debts. They can then use financial assets to pay off their remaining debt. After they do, they take the assets and divide them in accordance with the will.

In some cases, means that descendants or beneficiaries may inherit less than they anticipated. If there was a substantial amount of debt, financial assets may be depleted significantly before distribution. But those beneficiaries do not have to cover the costs of this debt on their own, so they don’t have to worry about it being personally unaffordable. The money from the estate should handle the obligations and close down any remaining accounts.

If you are making an estate plan, it’s very important to address debts and to keep in mind how the legal process works. Take the time to consider your options and what will work best for your family.