Does Debt Get Passed to Your Beneficiaries When You Die?

When you work on your estate plan, one of the goals is to help resolve debts and make sure they’re not a concern for your beneficiaries. What happens, though, if you do pass away with debt? 

Whether you have a mortgage or credit card debt, the reality is that your debt doesn’t just disappear. Your estate will need to pay back any debts that you have. 

Handling Debts After Your Death In Texas

When you have debt and pass away, a few things will happen. 

• First, your estate will become obligated to pay the debt.
• Second, your executor will be required to contact creditors about the death.
• Third, creditors will get in touch, and assets from the estate may be used to pay down the debt.
• After all the assets from the estate have been used, any further debts may go unpaid.

On the whole, your estate will be responsible for your debt. There are times when others may be responsible, though.

Who Can Debt Collectors Contact After Your Death?

Under the Fair Debt Collection Practices Act, or FDCPA, collectors are allowed to talk about a deceased individual’s debts with:

• The executor of the estate
• Their parents (if they were a minor at the time of death)
• The surviving spouse
• The deceased’s guardian
• Any other person who may be authorized to make payments on behalf of the estate using the assets that remain in the decedent’s estate

If creditors contact someone who is not listed here, they could be in violation of the FDCPA. 

Who Could Be Held Liable for Debts Not Covered By the Estate?

Typically, only the estate is responsible for any debts that have accrued in the decedent’s name. However, it is possible that others you know could be held accountable for those debts in some cases, such as if:

• Someone cosigned a loan or took on a debt with you
• You have a joint account, such as a joint credit card account, with another person
• The state laws require your spouse to pay a certain kind of debt due to community property rules
• The state laws require your spouse to pay a specific type of debt, such as your health care expenses

It is important to remember that there are times when surviving loved ones may be responsible for debts accrued during your lifetime. That’s why it’s important to prepare with an estate plan that takes debt into consideration.

How Can You Protect Your Surviving Spouse and Beneficiaries Against Creditors?

To start with, you should work on an estate plan that takes into consideration the possibility of remaining debts after your death. When you work with our team at Krupa Downs Law, we’ll go over options like setting up an irrevocable trust to hold assets outside of your estate or using beneficiary designations to directly pass down life insurance benefits or other assets. 

When you prepare in advance, it’s possible to minimize the risk of having to repay debts out of the assets that you currently hold or those passed on to those you left behind.

What Should My Family Do If Debt Collectors Contact Them?

If a debt collector contacts your family after your death, they should initially refer the debt collector to the executor. The executor you elected for your estate is responsible for settling your debts once you pass away. 

Debt collectors might still reach out to your loved ones, which is legal. However, they may not discuss the debt with anyone other than the executor or relative who may owe or have the power to pay the debt out of the estate. If they continue to call and harass your family members, then it’s an appropriate time to let your attorney know and to take action to stop creditor harassment.