When an estate faces debt after someone dies, your first instinct is probably to pay those bills. After all, who wants to be sent to collections? But while there are indeed some debts and other expenses that an estate must pay throughout and after the probate process, know that you are not personally responsible for any payments. And the estate may not be – especially if there are more debts than assets.
Nobody should pay any of the estate’s debts out of their personal funds while an estate is in probate. That means when the electric bill, cable bill and lawncare bills come, don’t pay them out of your own pocket, and wait until the estate is settled before making payments from the estate.
Here, we walk you through a three-part process for how to manage debt when someone dies, and determine when and how to pay which bills. Because details will vary by state and locality, always check the laws in your area before proceeding.
1. Determine whether the estate is solvent or insolvent
This is a critical first step, and it may take some time. Before the estate pays any debt after someone dies you must determine whether the estate is solvent or insolvent. A solvent estate means there are still assets left after all the debts have been paid. An insolvent estate means that the debts exceed the value of the assets.
The process of determining whether the estate is solvent or insolvent can take weeks or even months, so ask creditors for extensions during this process. If necessary, provide them with a death certificate. If the estate’s finances and other records are orderly, or if the deceased kept the executor updated on their financial records, it will take a shorter time. If not, it will take time to gather accurate records.
2. Calculate every asset, liability and debt after someone dies
In order to accurately calculate solvency or insolvency, the estate must compile accurate records for all assets, debts and other liabilities. These can include:Assets
- Bank statements
- Stocks and bonds
- Life insurance
- Titles to cars, boats, and other vehicles
- Investment records
- Inventory of household items
- Tax returns
Debts and Liabilities
- Property taxes
- Federal, state, and local taxes
- Housing Fees
- Medical bills or hospital fees
- CPA fees
- Funeral costs
- Probate fees
- Personal, student, and other loans
- Credit card, phone, utility, or any other bills that come in the mail
- Other related expenses (check with your attorney and state laws)
3. Adhere to priority of payment
If the estate turns out to be solvent, then all debt after someone dies must be paid. But if it is insolvent, you may have more options. To begin, you must compile a list of debts in order of “priority of payment.”
Priority of payment is the order in which to pay debt after someone dies – and we will go into this further in Part II. Not following the debt payment order may cause you to pay debts you potentially would not have to pay.
Start by checking local and state laws on official government websites. For insolvent estates, be certain to follow the payment order. Expenses like mortgages are typically at the top of the list because they will need to be paid during the probate process. Keep track of any related expenses to have them covered by the estate later.
What if creditors and other companies keep harassing me to pay off bills?
Remember – unless you are the executor of the estate, you’re not liable to pay credit card companies that call you. Creditors will immediately attempt to collect on debts after someone dies, and often will go to any family member for the money. Their fear is that, should the estate prove to be insolvent, they will have to write off the debt or only get a portion of the debt back.
No matter how aggressive collectors may be, wait to pay those credit cards until after establishing solvency of the estate, and after researching your state laws. In some states, for example, a spouse is only liable for shared credit card debt if your name actually appears on an account or record. In other states, you may be liable whether your name is listed on the account or not.
Clearly, it can be worth your time to do some legwork, and research your state laws. The debt when someone dies may not be yours to pay.