When There Is Not Enough Money to Pay Estate Debts

Long Island Estate Debts Lawyers - Lamkin Elder Law

After an individual passes, their debts do not cease. Instead, their estate survives and is then obligated to pay any existing debts that the deceased incurred during their lifetime. But what if the deceased’s estate does not have enough funds in the estate account to cover those debts or has no plan for paying them?

Paying Joint Debts

The Federal Trade Commission (FTC) has strict guidelines for the debts of the deceased. Under those regulations, family members are not required to pay any debts of the deceased from their own assets. However, there are exceptions to this regulation and there are instances where surviving family members may be held liable for any debts. These exceptions include:

  • Someone that co-signed on the debt;
  • Community property states;
  • The deceased’s spouse and if state law requires that the spouse pay for certain debts (such as health care expenses);
  • The individual was legally responsible for resolving any remaining estate debts per probate laws.

Referred to as “joint debts,” these debts are then the obligations of the surviving debt holder. Therefore, if you have joint debts with a deceased individual, you need to contact the lender to review the terms of the loan or credit line and if required, transfer the obligation into your name and address for fulfillment. You also need to ensure future payments on the debt no longer come from the estate account, but from your personal account.

Paying Individual Debts

When debts are in the decedent’s name and there are no joint account holders, these individual debts must be paid by the estate. The executor is obligated to sell any existing assets to raise enough funds to cover these debts as much as possible. If there are no assets and no cash, creditors have no other options for collection.

Executors must follow an order of priority with estate debts, which includes:

  • Administration, funeral and testamentary expenses;
  • Creditors with security, such as a mortgage lender;
  • Taxes and social insurance contributions;
  • Unsecured debts.

When the estate does not have sufficient assets to cover the debts, then the debts are paid from the following assets:

  • Property that was not dealt with specifically in the estate plan;
  • Any remaining assets that are leftover;
  • Property that was specifically left to pay for remaining debts;
  • Gift monies or other bequests in the estate plan.

Create an Estate Plan That Addresses Your Debts – Contact an Estate Planning Attorney Today

It is important that you leave enough assets or create a plan for covering debts your loved ones may be required to pay. The Law Office of Andrew M. Lamkin, P.C. can help you devise a plan that ensures joint debts are adequately covered and your individual debts are satisfied. We can explore your options and find creative ways to fund your estate – even when you think there is no way to cover your debts. Contact us now for a free consultation at 516-605-0625 or fill out an online contact form to learn more.

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