If you are involved in settling the estate of a close family member, you might be dismayed to discover extensive debts in your family member's finances. You understandably will have plenty of questions, including who is responsible for paying those debts and how the accounts will be settled. Unfortunately, lack of knowledge when it comes to settling an estate can lead to costly mistakes. Here are some basic tips for handling deceased debt.
Hire a probate lawyer.
Sometimes, meting out balances and trusts can be simple, especially if the deceased did not have significant financial assets. However, when debt is involved, the process of paying creditors can be extraordinarily complex. A probate lawyer will be able to work to protect inheritances, trust funds, and property bequests, and you will have a better chance of keeping them with a lawyers help, but you should be aware that major assets often go to pay off outstanding debts.
A probate lawyer is also needed for "stickier" financial situations. For example, typically a relative is not held responsible for a loved one's debts. Unfortunately, this is often not true for spouses, except in community property states. If you were married to the deceased, you might be on the hook for their personal debt, even if you did not know about it. Hiring a lawyer can help fight those debts that you cannot assume responsibility for. Lawyers can also help to protect businesses (if the deceased was an owner or partner) from being swallowed up in debt resolutions.
Don't deal with creditors directly.
After your family member dies, you might start getting calls or visits from creditors or debt collection agencies. Even if you do bear some personal responsibility for the debt, you still should not spend time making plans or promising payback schedules until you have met with your lawyer. Lending agents can be:
- aggressive. Some agencies may scare you into paying when you legally have no obligation to do so. For example, some children might think they are responsible for the debts of a parent, but this is often not correct. Your lawyer can help you know who has a right to claim your money.
- fake. Unfortunately, some people take advantage of public records to contact the families of deceased persons. They pose as creditors, asking for personal information and bank account numbers as part of a method of setting up "repayment." You could end thinking you are paying off debts when in reality you are sending hundreds or even thousands of dollars to a fraudulent account.
- uninformed. Some may believe that you have more assets than you do, threatening to target property (like a home) that you do personally own. Your lawyer will be able to give lenders a clear picture of the what assets, if any, are on the table.
- unethical. It's not right (or legal) for creditors to threaten you, to use the emotional situation against you, to guilt-trip you, or to morally berate you into paying the debt of a family member. Statements like "You father would have wanted you to pay this debt," or "If you cared about your child, you would settle this debt," should raise red flags.
It's especially important to seek legal help if you have experienced creditors trying to reach you at inappropriate places, like at the funeral or at your home. Your lawyer can draft a letter requiring them to cease efforts to contact you unless they have a legal matter than needs your attention.
Managing probate and estate settlement is difficult enough without worrying about whether not you have to assume responsibility for some else's debt. If you're concerned about your personal situation, contact a probate attorney in your area for more information.