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Handling debt during estate administration

On Behalf of | Jul 23, 2020 | Estate Administration |

Mourning the loss of a loved one or dear friend is never easy. You might take comfort in the fact that he or she trusted you enough to put you in charge of estate administration, but grief can make it hard to navigate. Unfortunately, there are some who may try to take advantage of an executor who is simply doing his or her best.

For example, dealing with someone’s debt after his or her passing can be fairly confusing. Creditors may try to push for people who are not responsible for those debts to pay them back. This often puts executors like yourself in a difficult and confusing position.

Does the family pay the debt?

In general, family members do not have to pay back their loved one’s debts. An exception to this is if a relative was jointly responsible — for example, a shared auto loan with a spouse or business loan with a sibling. A loved one could also be responsible for paying back a debt if it substantially benefited him or her. So, if the deceased took out a personal loan and used it to pay a relative’s living expenses, that relative could possibly be on the hook for repayment.

Otherwise, it is through the estate that one usually pays debts off. While this might seem obvious if the deceased did not have a will, one will also need to pay those debts even with a will. It is important that you understand how to allocate estate funds for repayment.

What if the estate is low on funds?

There are not always enough funds to satisfy all debts. This means that there may be unpaid debts leftover. So long as not jointly owned, these unpaid debts essentially “die” along with the estate’s decedent.

Unfortunately, this does not always deter creditors from trying to collect anyway. Creditors often contact spouses and other relatives, requesting payment on their loved ones’ behalf. While relatives certainly have the choice to make those payments, it is not at all required. Relatives might still feel pressured into making payments, which is why it is important to determine whether anyone else is responsible for debt.

Do I need to handle life insurance?

A lot of people in Pennsylvania set up life insurance policies during the estate planning process. This makes sense, as estate planning requires thinking about the financial logistics of the future, and a good life insurance policy can protect loved ones. However, these policies are not actually part of someone’s estate. Instead, the funds will transfer to the policy’s beneficiary without any intervention from an executor.

It is hard to fill the role of executor, especially if you are not familiar with estate planning. You may be worried about making mistakes or missing an important detail. This is understandable, but you do not have to take on this task all by yourself. Working closely with an experienced and knowledgeable attorney can be key to successfully administering your loved one’s estate.