Understanding Debts After Death: Why Avoiding Probate Matters

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February 2024

Losing a loved one is an emotional and challenging time, and dealing with their financial affairs can add another layer of complexity to an already difficult situation. One of the primary concerns that arises after the passing of a family member or friend is what happens to their debts. In this article, I want to answer some questions that I get a lot from my clients about handling debts left behind by a parent or loved one.  The debts include medical bills, credit card debts, and the role of probate court.  Hopefully, after you understand how the debt of a decedent works it will help you to realize another reason why avoiding probate can be advantageous.

What Happens to Debts After Death?

When an individual passes away, their debts don’t simply vanish into thin air. Instead, they become part of the decedent’s estate, which is the sum of all their assets and liabilities. The estate will be responsible for settling these debts before any remaining assets can be distributed to heirs or beneficiaries.

Medical Bills:

Medical expenses are a common concern, especially if the deceased had significant healthcare needs prior to passing away. In the United States, medical debts are typically considered unsecured debts and are subject to the rules of the decedent’s state of residence.

Upon the individual’s death, medical bills become part of their estate. The estate personal representative or administrator is responsible for notifying healthcare providers of the death and arranging payment of outstanding medical bills from estate assets. If the estate lacks sufficient funds to cover all debts, medical providers may need to write off the remaining balance, depending on state laws.  However, it’s crucial to note that in Massachusetts, medical providers can only make claims against the probate estate for payment of outstanding medical bills. Family members or heirs at law are not personally responsible for these debts unless they were co-signers or otherwise legally obligated to pay.

This distinction is significant because it means that while medical bills must be settled from the estate, the family members or heirs themselves are not liable for the debts. Understanding this can alleviate undue stress for grieving loved ones and ensure that they do not mistakenly assume responsibility for debts that are not theirs.

Credit Card Bills:

Similarly, credit card debts of the deceased individual are also considered claims against the probate estate in Massachusetts but are a significant area of concern. Creditors may file claims with the probate court to seek repayment from estate assets. Once again, family members or heirs are not personally responsible for these debts unless they were joint account holders or co-signers on the credit card accounts. Like medical bills, credit card debts are considered unsecured debts and are typically paid from the decedent’s estate assets. However, unlike medical bills, credit card companies may aggressively pursue repayment, which can complicate matters for grieving family members.

If the decedent had joint credit card accounts with a spouse or co-signer, the co-owner may be held responsible for the outstanding balance. Otherwise, credit card debt is typically settled from the estate, with any remaining debt discharged. It’s important for family members not to use their own funds to pay off a deceased individual’s credit card debt unless legally obligated to do so.

Probate and Debts:

Probate is the legal process by which a deceased person’s estate is administered and their debts are settled. During probate, the court oversees the distribution of assets and ensures that creditors are paid from the estate before beneficiaries receive their inheritances. Probate can be a time-consuming and costly process, often lasting several months to a year or more, depending on the complexity of the estate and local laws.

Claims at Probate Court:

Creditors have the opportunity to file claims against the estate during probate to collect outstanding debts. The personal representative or administrator is responsible for reviewing these claims and paying them from available estate assets. There is a hierarchy of who gets a debt paid off first before the heirs or beneficiaries get their money.

Why Avoiding Probate Matters:

Given the potential complexities and delays associated with probate, many individuals seek to avoid it altogether. There are several reasons why avoiding probate can be advantageous, especially when it comes to debt settlement:

• Privacy: Probate proceedings are a matter of public record, meaning that anyone can access information about the deceased person’s estate, including their debts and beneficiaries. By avoiding probate, individuals can maintain a greater degree of privacy for themselves and their heirs.
• Cost: Probate can be expensive, with court fees, legal expenses, and personal representative commissions eating into estate assets. By bypassing probate, individuals can save money on administrative costs, allowing more of their assets to pass directly to beneficiaries.
• Time: As mentioned earlier, probate can be a lengthy process, tying up assets for months or even years. By avoiding probate, beneficiaries can receive their inheritances more quickly, providing much-needed financial stability during a difficult time.
• Control: Probate is a court-supervised process, which means that decisions regarding the distribution of assets and settlement of debts are ultimately made by a judge. By avoiding probate, individuals can maintain greater control over the distribution of their assets and ensure that their wishes are carried out without interference.

In conclusion, understanding what happens to a decedent’s debts after they pass away is crucial to alleviating stress after a loved one passes away. Medical bills and credit card debts become the responsibility of the estate, which is settled through the probate process. However, avoiding probate can offer numerous benefits, including greater privacy, cost savings, expedited asset distribution, and increased control over the estate. By taking proactive steps to avoid probate, individuals can streamline the estate settlement process and provide their loved ones with a smoother transition during a challenging time.