After a person passes away, his or her estate must be settled. This includes distributing property, which people typically expect. But it also includes paying off debts, which can catch some people by surprise.
Before you write a check or make any type of payment on any debt, you would be wise to confirm that it is indeed your responsibility to do so.
- Confirming the validity of the debt – Just because someone claims a decedent owes them money does not mean it is a valid claim. Creditors must submit a valid claim to the estate in a timely manner during probate. At that point, the executor will decide whether the debt is valid. Family members may receive collection calls seeking payment on a debt, but this does not mean a claim is valid or that they are responsible for paying it. Such requests should go through the personal representative for resolution.
- Considering jurisdiction – Laws regarding debt and property distribution upon death vary between states. As such, be sure you know which state is handling the probate process. If it is in Wisconsin, then it will be subject to Wisconsin laws. In this and other community property states, spouses can be liable for debts incurred during their marriage; in other states, this may not be the case.
- Determining your liability – Not only can spouses be liable for debts (at least in Wisconsin), but so can co-signers and others. But in general, people will not be responsible for repaying debts out of protected assets, like retirement accounts that go to beneficiaries. As this article notes, testators should remember this when creating an estate plan.
Too often, people wind up paying off debt for which they have no legal obligation, due to either misinformation or misguided intentions. This can add financial strain on top of the grief and stress a person is already experiencing, so it is crucial to avoid this.
To do so, you can discuss your responsibilities with an attorney. Whether you are the personal representative of an estate or a loved one, it can be valuable to have legal guidance when it comes to handling a person’s debts after death.