After a loved one dies, you’re naturally overwhelmed with emotions. If you’re the next of kin or the estate’s executor, you’re also swamped with mail and paperwork. The deluge never stops: mortgage, auto loan, personal loan, and credit card bills. You open a credit card bill, only to find the card issuer demanding payment in full. “Can they do that?” you wonder, setting it aside with a deep sigh. You can deal with these debts, but it requires some knowledge about finances, death, and the law.
Estate Law and Distribution of Assets
Under United States law, a deceased person’s estate consists of everything that individual owned at the time of death. As Investopedia explains, this includes physical assets such as property, vehicles, antiques, art, and personal effects. It also includes cash, investments, insurance, bank accounts, and any other intangible assets in which the person had a controlling interest.
Deceased people’s estates typically undergo a court-supervised process known as probate. The Balance describes how probate works in detail. The key takeaway is that probate determines what assets an estate contains and who has the legal rights to them.
Debt Collection and Estate Laws
When a loved one dies, are you on the hook for remaining debts? Probably not. The estate’s executor must pay outstanding debts directly from the estate. Writing for Vice, journalist Arielle Pardes lists the order in which debts are usually paid. Mortgages come first, then other secured debt such as auto loans. Unsecured debt such as credit cards, personal loans, and store charge cards are paid last. If any assets remain, the executor must distribute them to the estate’s legally entitled beneficiaries.
Pardes explains that credit card companies handle the death of a customer in a couple of different ways. Some write off any outstanding balances, but taxes must be paid on the canceled debt. Other companies attempt to collect from their customers’ estates. As NerdWallet reveals, Federal Trade Commission rules allow debt collectors to contact surviving family regarding outstanding debts. However, the Fair Debt Collection Practices Act spells out what they cannot do:
- Make threats of violence or harm
- Repeatedly call and harass you
- Use profane or obscene language
- Use deceptive tactics to collect a debt
Unscrupulous third-party collectors may claim that surviving family have a legal responsibility to pay the deceased’s debt. In many cases, such claims are false. Creditors also cannot take funds from retirement accounts and life insurance payouts. The FTC’s Consumer Information Guide provides more information about debt collection and your legal rights.
For Every Rule, There Are Exceptions
Debt collectors can’t bully you into paying a debt that’s not yours, but what if you’re a joint account holder with the deceased or you cosigned with that person on a loan? That’s where things can get a little tricky. In those cases, you are legally responsible for the debt. Joint property owners or people who inherit property from the deceased will have to pay the associated mortgages and home equity loans. Auto loans must also be paid either from the estate’s assets or by the people who inherit the vehicles.
Community property states have different rules for a deceased’s debts. In those states, assets acquired by a couple during their marriage must be equally split. Debt liabilities are also split up, as Investopedia clarifies. If one spouse incurs individual debts during the marriage, the surviving spouse must pay those debts.
Know Your Responsibilities and Rights
Bills don’t magically go away when a person dies. Dealing with them may be the last thing you want to do as you grieve, but you’re not without solutions. Knowing the law and your rights are key when handling these matters. By exercising sound judgment, you can navigate your loved one’s finances and serve your family’s best interests.
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