In the United Kingdom, debt is not inherited, therefore relatives, friends, or anyone else cannot be held liable for the obligations of the deceased.
If you had a joint loan or arrangement with the deceased individual, or if you offered a loan guarantee, you are only accountable for their debts. In other words, you are not automatically liable for the obligations of a husband or registered civil partner. While the Personal Representative is not personally accountable for the deceased’s obligations, they will almost certainly have to be paid from the deceased’s inheritance.
What debt can be inherited?
If your parents are in a lot of debt and you’re afraid about having to pay their bills after they die, this is a crucial issue to ask. The quick response is almost always no. You don’t usually inherit someone else’s debts the way you could inherit their property or other assets. Even if a debt collector approaches you for payment, you are under no legal need to comply.
The drawback is that any unpaid debts will be subtracted from the estate’s assets. If your parents were heavily in debt when they died, paying off their debts from the estate may leave you with little or no assets to inherit.
You should be aware, however, that you can inherit debt for which you were already legally liable when your parents were alive. If you cosigned a loan with them or obtained a joint credit card account or line of credit with them, those debts are legally yours as well as your parents’. As a result, you’d be totally responsible for repaying them after they died.
It’s also crucial to know what responsibilities you may have for paying for your parents’ long-term care expenses while they were living. Many states have laws requiring children to pay for nursing facility expenses, although these rules aren’t often followed. Speaking with your parents about long-term care planning will help you prevent situations where you will be faced with an unexpected debt.
Can you refuse to inherit debt?
Unless you co-signed for the loan or applied for credit with the person who died, you won’t be able to inherit debt from your parents.
Does debt pass to next of kin?
Unpaid debts do not simply vanish when someone passes away. It becomes a part of their personal property. Except when they own the loan, family members and next of kin will not inherit any of the outstanding debt. As a result, they can be a crucial component of estate planning.
Who’s responsible for a deceased person’s debts?
In most cases, a person’s debts do not disappear when they pass away. Those debts are owed by and paid from the estate of the deceased person. Family members are usually not required by law to settle a deceased relative’s debts with their own money. If the estate doesn’t have enough money to cover the debt, it usually goes unpaid. There are, however, exceptions to this rule. If you do any of the following, you may be personally liable for the debt:
- are the spouse of the deceased person and live in a community property state like California
- are the surviving spouse of a deceased individual, and live in a state that mandates you to pay certain types of debt, such as some healthcare costs
- were legally liable for the estate’s resolution and failed to observe certain state probate regulations
Consult a lawyer if you’re unsure whether you’re legally obligated to pay a deceased person’s debts with your own money. You may be eligible for free legal assistance from a legal aid agency near you, depending on your income.
Who can pay debts out of the deceased person’s assets?
The executor is responsible for paying the deceased person’s debts. The executor is the person named in a will to carry out the terms of the will following the individual’s death.
If there is no will, the court may appoint an administrator, personal representative, or universal successor to the estate and grant them authority to settle the estate’s issues. In some states, that authority might be delegated to someone not chosen by the court. State law, for example, may set a different method for someone to become the executor of the estate even if the court hasn’t formally appointed them.
Can a debt collector talk to a relative about a deceased person’s debt?
The law protects persons, especially family members, against debt collectors who engage in abusive, unfair, or deceptive debt collection activities.
Collectors can contact the deceased person’s family and discuss outstanding debts under the Fair Debt Collection Practices Act (FDCPA).
- If the deceased was a minor child (under the age of 18), the parent(s) must be notified.
Collectors can also approach anyone with the authority to pay debts with assets from the estate of a deceased person. Debt collectors are prohibited from discussing a deceased person’s debts with anybody else.
If a debt collector contacts a deceased person’s relative, or another person connected to the deceased, what can they talk about?
Collectors can get the name, address, and phone number of the deceased person’s spouse, executor, administrator, or other person with the power to pay the deceased person’s debts by contacting other relatives or people connected to the deceased (who don’t have the power to pay debts from the estate). Collectors can normally only contact these relatives or others once to obtain this information, and they are not allowed to discuss the debt facts.
Collectors can contact the relative or other person again for updated information, or if the relative or other person provided incorrect or incomplete information to the collector. Even then, collectors are prohibited from discussing the debt.
If I have the power to pay a deceased person’s debt, can I stop a debt collector from contacting me about the debt?
Yes, you have the legal right to stop a collection agency from contacting you. Send a letter to the collector to accomplish this. A simple phone call is insufficient. Tell the collector that you don’t want to hear from them again. Make a copy of the letter for your records, then send the original by certified mail with a “return receipt” to prove that the collector received it.
However, even if you cease talking with collectors, the debt will not go away. The debt collectors may still try to collect the debt from the estate or anyone who falls into one of the above categories.
How do you avoid inheriting your parents debt?
The difficulty of dealing with the death of a relative should not involve letters and phone calls from creditors demanding payment. There are rules protecting people from inheriting debt, so be wary if a credit card firm asks for payment after a family member passes away.
Creditors seeking payment must submit their request in writing to the estate’s attorney or named executor within six months of the estate’s opening. After that period, no claims will be entertained, and not all claims will be paid.
Some creditors refuse to file a claim with the estate, instead pressuring family members to pay the obligation with their own funds. Unless you co-signed a credit card or loan agreement, you are not accountable for any of the deceased’s debts. The debt is not the responsibility of the account’s authorized users.
Creditors may pursue a surviving spouse to pay a debt in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin, and Alaska, which is an opt-in community property state).
If creditors continue to hound you as a family member for payment, write a letter or have your attorney write one on your behalf demanding that they stop all contact. Creditors are not allowed to discuss a debt with relatives, neighbors, or friends under the Fair Debt Collection Practices Act.
Claims filed within six months of the estate’s opening are confirmed by the executor and paid in accordance with state and federal rules.
Can debt collectors go after family?
Even if you are not legally bound to pay a loved one’s debts, you or your family members may get calls from collection agencies requesting payment.
If you discover that a debt collection agency is harassing family members or abusing the law, write or have an attorney write a “Cease and Desist” letter on your behalf. This letter basically tells a creditor to cease contacting you or your family members.
Prepare to submit complaints against abusive collection agencies if required. Debt collectors are not permitted to contact you or your family about unpaid obligations. They’re also not permitted to call at specific hours of the day, and they’re not allowed to contact you at work if you’ve indicated that you don’t want to accept calls.
Your relatives shouldn’t have to cope with debt collectors contacting them. Creditors aren’t even allowed to communicate to your relatives, friends, or neighbors about your debts under the Fair Debt Collection Practices Act (FDCPA).
So, what should you do if a debt collector calls to demand payment for a family member’s bills?
The Federal Trade Commission urges consumers in one of its consumer alerts not to give debt collectors their personal information, such as bank account information or Social Security numbers, when they say that a deceased relative owes money. Some of the callers could be scammers who have been scouring the obituaries for ways to steal people’s identities.
Who is responsible for debts after death?
In most cases, the estate of the deceased person is responsible for settling any outstanding obligations. The personal representative, executor, or administrator is in charge of the estate’s finances. Any debts are paid from the estate’s funds, not from the individual’s own funds.
Who is responsible for credit card debt after death?
Before any assets are handed to your heirs or surviving spouse, any debt you leave behind must be settled. Debts are paid from your estate, which is the total of all of your assets at the time of your death. Your estate’s assets are used by the executor to pay off your outstanding debts. The executor may be someone you named in your will or estate plan, or someone appointed by probate court if you don’t have a will or estate plan.
Your estate is insolvent if you have more obligations than assets. Whether your credit card debt must be paid by family members in this circumstance is determined by a number of variables.
After you die, anyone who is a joint account holder on your credit cards may be held liable for the debt. Joint account holders apply for credit cards as cosigners or co-borrowers, and the credit card provider looks at both applicants’ credit reports before choosing whether or not to extend credit. The credit card amount must be paid in full by both account holders.
These days, just a few big credit card firms provide joint accounts. If you and your deceased spouse shared a credit card account, it’s more than probable that one of you is an authorized user on the other’s account. (If you’re not sure which group you fall into, call your credit card company.)
You obtain a credit card in your name for the account as an authorized user, and you can use it to make purchases and payments. The principal account holder, on the other hand, is ultimately responsible for the credit card amount. If you’re an authorized user on a deceased person’s account, you’re normally not compelled to pay the outstanding sum.
However, there is one important exception: community property states often make spouses liable for each other’s obligations. Even if you were only an authorized user or the credit card was completely in their name, if you live in a community property state, you may be obligated to pay your spouse’s credit card obligations after their death. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, while Alaska allows spouses to declare their property community. Because laws differ from one community property state to the next, if you live in one of these states, find out what your responsibilities are by consulting an attorney who specializes in estate law in your state.
Do I inherit my spouse’s debt?
No. Debts incurred before to the marriage remain the unique responsibility of the individual, even in common property jurisdictions. So, if your husband is still paying off school loans, for example, you shouldn’t be concerned that once you marry, you’ll be responsible for their debt.
If you took out a joint credit card before getting married, both partners are responsible for the debt. However, being married does not make you inherit debt; it is signing up for a joint account that makes you responsible for the debt.
Can you be held responsible for Parents debt?
No, the debts of your parents, partner, or children do not become yours when they die, and your debts will not be passed to someone else if you die. Should the other co-signer die away, all debts or money owed through joint and co-signed accounts become your responsibility.
How do creditors find out about inheritance?
The distribution of estates to heirs is public record. Creditors and collection agencies frequently search those databases for debtors among the beneficiaries of inherited property. This informs them that a debtor may now have sufficient funds to repay all or part of their obligation.
The only way to protect such assets if you file for bankruptcy or if a creditor sues you for repayment is to not own them. Otherwise, inherited money in a bank could be taken to pay off the obligation. If your inheritance consists of real estate, the creditor may file a lien against it. This means that the creditor can use the earnings of a property sale to pay off the debt or even force you to sell it.
It may now be in your best interests to pay off debts with inherited assets. It may spare you from going to court, as well as improve your credit rating and your prospects of eventually qualifying for credit or a loan.
However, there are a few possibilities if you desire to keep the inherited assets for another purpose.
One option is to relinquish ownership of the property. This entails relinquishing all rights to the inheritance and transferring it to a descendent, such as your children. Before you take ownership of the property, you should disclaim it; otherwise, a court may accuse you of fraud. If this is the case, the court will reverse the transaction and award the creditor the inherited property, or whatever amount is required to satisfy the debt.
By putting assets in a trust, the person or persons who are leaving you an inheritance can protect them from creditors. A lifetime asset protection trust is an irreversible trust used when an heir’s ability to safeguard the estate is questioned. The assets in this arrangement belong to the trust, not the beneficiaries. This safeguards assets from being spent down, claimed by creditors, or other parties in a court action, such as existing or prospective ex-spouses.
A spendthrift trust is a similar form of trust that is used to protect estates as they are passed down to heirs. This is likewise an irrevocable trust in which the assets remain in the trust’s ownership. A spendthrift trust permits the trustor, who established the trust, to impose withdrawal limits. A well-crafted spendthrift trust also protects the estate from potential creditor claims.
Living in an inherited home can sometimes shield it from creditor action. A homestead exemption is available for a property that is used as a person’s primary dwelling. If a property receives this exemption, it cannot be sold to pay off a debt if the amount of equity is less than the state’s exemption level.
Individual retirement accounts are another sort of property that has traditionally been protected from creditors (IRAs). Annual contributions to IRAs have been protected up to $1.2 million. However, inherited IRAs are not covered by this protection.
The United States Supreme Court unanimously concluded in 2014 that monies held in inherited IRAs are not retirement funds and so are not excluded from a bankruptcy estate.
When a person inherits an IRA from his or her spouse, the assets can be rolled over into another IRA, which keeps the creditor protection. Non-spouses who inherit IRAs, on the other hand, are unable to roll over monies. Furthermore, the non-spouse beneficiary must take all funds from the original account within a set timeframe, which is determined by the age of the original owner.
Non-spouses who inherit IRAs can also use trusts to protect their assets. A see-through trust and a trusted IRA are the two most common trust options for IRAs.
Large IRAs are often held in see-through trusts, whereas smaller IRAs are held in trusted trusts. The trust owns the IRAs under these arrangements, and its assets can be transferred on to the recipient as directed by the IRA owner (s). Creating any type of trust usually necessitates the assistance of a professional attorney with experience in estate planning.
What happens when someone dies with debt and no assets?
If you have any credit card accounts with a co-owner, the co-owner is responsible for any account balance.
Keep in mind that a joint owner is not the same as an authorized user who has access to your credit card. Your credit card debt is not the responsibility of an authorized user. If you only have credit cards in your name, the credit card companies can file a claim with your estate to be compensated.
“The debt will die with the debtor if there is no estate, no will, and no assets—or not enough to satisfy these debts after death,” Tayne explains. “Children or other relatives have no obligation to pay the debts.”
