Estate Law - debt responsibility of survivors

Searched for this and did not find any thing on it.

Scenario: single parent dies with a simple will leaving the estate to two minor children. Parent owes for a couple of student loans and small credit card balances.

As heirs of the estate, are the children liable for these debts? What happens if the value of the estate does not cover the debt amount? I have heard that student loans attach to any of the person’s family.

(Disclaimer: I realize that answers will be general, and will not take the place of legal advice.)

IANAL, but the probate process is supposed to take care of any oustanding debts. Once probate is completed, any creditors who haven’t come forward to make their claim on the estate are barred from doing so.

I’m not sure about the terms of student loans, but generally speaking, if the estate doesn’t cover the outstanding debts of the deceased, the creditors are just out of luck.

I believe, however, that if the estate doesn’t go through probate (perhaps because the assets are all held in a revocable living trust, for example), then the creditors probably can come after the heirs for the money they’re owed.

A real, practicing attorney should be along shortly to tell me that I’m full of it.

IANAL, etc. The estate is responsible for the debts, not the heirs. The executor of the estate is responsible for paying off debts out of the assets of the estate. Creditors can’t touch assets belonging to the heirs to fulfill the obligations of the decedent. If the assets of the estate don’t cover the debt in full, the creditors take what they get and write off the rest,

Glad you understand that nobody can give you legal advice on this question. See this thread for more details on the disclaimer issue.

Just in case anybody else is listening, (or reading this thread), by posting to this thread, I’m not offering NinetyWt or anybody else legal advice. I’m not your lawyer, you’re not my client. Before you rely on anything that I or anybody else posts in this thread, you should consult an attorney licensed in your jurisdiction.

Having said all that, here are the relevant principles as I understand them. I caution you that I am not an estate planning attorney, so, if I get something wrong, let’s hope someone comes along and corrects me.

Here is the short answer to your question: you cannot be personally liable on a debt that someone else incurred simply because you are her heir. If your Aunt Sally dies, with $100,000 in debt, and she leaves you, her sole heir, $10,000, you–the heir-- are NOT on the hook for the other $90,000 that she owed when she died. On the other hand, you are not going to get the $10,000 either, because, generally speaking, all debts must be paid out of the estate before any of it can be distributed to the heirs. So, say that rather than leaving you $10,000 is cash, she left you a ring valued at $10,000. It is very unlikely that the ring will be distributed to you. Under our scenario, it will be sold to pay creditors.

When someone dies, a legal entity known as “the estate” comes into being. Debts incurred by the decedent are paid out of the estate. Whatever is left over is distributed to the heirs.

Student loans are kind of funny exception to this general rule. My understanding–and I’m honestly not sure this is right, it’s just what I heard–is that student loan debt, at least federal student loan debt, goes away on the death of the student who incurred the debt. In other words, in the scenario you described, the credit card balance would be paid out of the estate, but the student debt would NOT be, because it would be wiped clean on the death of the single parent. So, the children would receive the estate minus what ever was required to pay the credit card balances and minus whatever expenses were incurred to handle the estate (such as legal expenses, etc.)

NOW, there is AT LEAST ONE BIG EXCEPTION to everything I said above about being responible for someone else’s debts. If you AGREE to co-sign a loan or something with someone else, then you are on the hook. So, for example, say your sister co-signs your car loan, and you die, leaving your estate to your sister. Let’s say your estate is not big enough to cover the balance on the car loan. Now, in this case, your sister would be responsible for the debt. Not because she’s your heir, but because she agreed to co-sign your loan.

Looks like constantine is on the money about student loans. According to this Federal website, the death of the student results in the total cancellation of the outstanding loan balance.

What about in the case of a jointly owned house, tenants in common? Upon death, the house belongs soley to the wife. Can a credit card company from a credit card in the husbands name only, who had no other assets, come after the widow just because she now is the sole owner of the house?

I would suspect they could because in many jurisdictions there’s no such thing as a husband having a credit card solely in his name. Most (I won’t say all) of the time a marriage makes two people one for the purposes of incurring debt and other financial matters. So when the husband runs up the credit card so does the spouse.

IANAL…I’m just a man who had to untangle my father-in-laws affairs upon his death a few years ago. Royal pain in the ass but I finally got to hear these words from my mother-in-law: “Everyone should have a son-in-law like you!”

Early Out: wow. thanks for the link!

Constantine re: disclaimer. Quite right! I mighta been born at night, but it wasn’t last night.

And thanks everyone else for their answers.

You would have to check your state law. Generally speaking, property held in joint tenancy is not subject to the creditors of either party. However, state laws differ, and some states hold contra. Hence, the concept of tenancy by the entirety, which exempts homestead property from creditors of either party. Of course, the spouse of one debtor is not liable for the debts of the debtor personally.

Thanks, I think that is what my attorney said.

My state also allows credit cards to be separate for husband and wife, as long as the name on the credit card accounts are separate - one name only on the card.

What about IRA’s and 401K’s?

If the husband dies, and the IRA and 401K designate the wife to be beneficiary, can the credit card companies go after 401K or IRA passed on to the beneficiary/wife? (I know bankruptcy court cant touch either one of them)

The same cancellation at death applies to federal student loans in Canada. Not sure about provincial loans, but probably the same.

Good news for Kiwis: the same cancellation of a student loan balance applies in New Zealand. Can’t pay off your student loan? Just “off” yourself!

I just want to correct (slightly) my prior post, which I wrote just before going to bed, and did not thoroughly think it out. What I posted applies to liens against any property held IJT. Joint tenancy property is not part of any decedent’s estate and is not listed as an asset, since upon death title is in the surviving jnt tenant. So there is no way that a creditor can go against such property in every state in the Union.

If you have an attorney, and you said you do, you really should give him a call and have him answer all your questions. Make sure that you understand the answer, and if you don’t, make that known to your attorney.

The most recent article I could find on the estate tax and 401(k)s is from 1999 and it states that 401(k) assets are part of the decedent’s estate for purposes of the estate tax, which leads me to believe that, at least in 1999, they were subject to creditor claims. With all of the changes to the estate tax law over the last several years that may no longer be the case.

FYI (since it’s often the next question), life insurance policies that do not name the estate as the beneficiary do not pass through probate so are not subject to creditors or to the estate tax.