We regularly get calls from the family of a deceased who left nothing but debts. The spouse or kids believe that they are responsible for the debts of their deceased loved one. They begin to get hounded by the bill collectors right after the death. If the family does not investigate their rights and obligations, they may end up paying debts for which they have no legal obligation to pay.
The bill collectors tell the family that they are responsible for their loved one’s debts. The family is even told by the bill collectors that if they do not pay the debt, that they will be sued by the creditor, who then can start to seize their assets. The bill collectors will often harass and hound the family in order to get payments made.
One of the goals of every creditor is to minimize their losses. The primary goal of a bill collector is to maximize the amount collected. It seems that creditors and their bill collectors have stepped up efforts in going after people who have no legal obligation to pay the debts.
Many times, in order to pay medical and other bills, the deceased may have taken out a home equity loan or charged up thousands or tens of thousands of dollars on credit cards. After payment of the funeral, there may be little or no equity in the home or the credit card debt may be far in excess of the equity value in the home and other assets. What should you do in this situation?
Unfortunately, this is a common occurrence. We routinely counsel clients in this situation in which their spouse or parents have died leaving numerous debts far in excess of any assets. However, if your loved one has died, generally you have no legal obligation to pay your deceased loved one’s debts, except under certain circumstances.
You would typically only be responsible for your loved one’s debts which you have guaranteed or co-signed with your loved one, such as a mortgage note, credit card application or loan agreement. If you did not co-sign or guarantee the debts, the bill collectors cannot force you to pay.
If the debts are in excess of the value of assets or property of the deceased’s estate, the creditors are the only ones who actually have an interest in the estate. The family at that point has no real legal interest in the estate because pursuant to Michigan law, creditors’ claims have priority over bequests and inheritances.
When there are more estate debts than assets, there is usually no need for you to go through the time, effort, aggravation and expense of the probate court process. If you did, you would be just going through an exercise for the benefit of the deceased’s creditors. If the creditors want the assets, let them go through the probate process at their own expense.
However, property which passes to you through joint ownership or by a beneficiary or payable on death designation, is not considered an estate asset and is generally not subject to claims of estate creditors. Unless there is a mortgage or other lien on this property, it passes to you free of these estate debts and creditor claims.
For example, if you had a $20,000 joint account with your spouse, your spouse’s credit card company could not attach that account after your spouse’s death for your spouse’s $18,000 credit card debt.
Or if Dad left you a $35,000 bank account through a payable on death designation, the creditor to whom Dad owed $23,000 could not touch that account. The $35,000 is all yours.
Even if you are not liable for the debts, bill collectors often hound you to pay off these debts or threaten legal action against you. How do you get the bill collectors to stop? The quickest and best way is for you to hire an estate settlement attorney at your own expense. That may not seem fair, but it can be effective.
Have your estate settlement attorney review all of the debts to see if anyone other than the deceased is liable for them. If only the deceased is liable, your attorney could then draft a letter to the creditors stating that there are no assets to probate or that the debts of the estate are in excess of the assets, which will not be probated. A copy of the death certificate should be attached to the letter to give proof of death to the creditors.
If there are assets that need to be probated but will not be probated by the family, I recommend that a listing of all assets and debts with account numbers accompany the letter. This listing allows creditors to know what is available to satisfy debts so they can take whatever action they deem necessary to protect their interests. The family then must abandon the deceased’s property in favor of the creditors. Often times, this is tough to do.
Even when you do send an attorney letter to all the creditors, that may not stop some of them. You may still get calls from the bill collectors demanding that you pay your deceased loved one’s debts. You can then just tell the bill collector to stop calling you and to contact your estate settlement attorney directly.
Sometimes the bill collectors are persistent. If you continue to get letters from the deceased’s creditors, do not open them. Instead, mark on the envelope that the deceased has moved, indicate the name and address of the cemetery, including the grave block and plot number and return it to the mail carrier. If the bill collectors still continue to call, tell them the deceased has moved and give them the address of the cemetery and phone number of the cemetery office.
If you are in the situation where Mom or Dad or your spouse dies and leaves more debts than assets, before you start paying on those debts, contact your estate settlement attorney. Your attorney should be able to review the assets and debts and make a determination if any of the survivors is liable for any of those debts.
You might be able to save yourself thousands or even tens of thousands of dollars in expenses by spending much less consulting with an estate settlement attorney.
By: Matthew M. Wallace, CPA, JD
Published edited May 22nd, 2016 in The Times Herald newspaper, Port Huron, Michigan as: Survivors Not Responsible for Deceased’s Debts