Most people have at least a small amount of debt when they pass away. Even funeral expenses are an unpaid debt for the decedent if he didn't make arrangements, for example. However, debts cannot be passed on to heirs and beneficiaries. Instead, the value of all the decedent's assets -- items and investments she owned -- pay off any outstanding debts she leaves behind.
Debt of the Estate
When a person passes away, all debts he did not pay off in full before he died are considered by law to be debts of his estate. As debts of the estate, the estate is treated as an entity and is legally responsible for paying those debts in full. Estate debts include legal fees for probate administration, funeral costs, medical bills, unpaid utility or credit card bills and other unpaid claims.
Assets of the Estate
The assets of an estate are items of value the decedent owned before she passed away. Estate assets include liquid valuables, such as bank and investment accounts, and tangible valuables, such as real estate, motor vehicles, collectibles, jewelry and antiques.
Estate Debt Payments
Upon the death of an individual, a probate court case is opened to help settle the affairs of the decedent and ensure that the terms of the will -- if one was left -- are carried out properly. Probate also allows the legal transfer of assets from the decedent's name to an heir's name. All estate assets must be inventoried and listed with a current value as part of the probate process, and all outstanding debts must be listed with values as well. The court may order some of the estate assets to be liquidated as a means to pay off remaining debts. Once all debts are paid from the value of the estate assets, all other assets are distributed to heirs and beneficiaries as ordered in the decedent's will.
Beneficiaries Are Not Liable
Beneficiaries and heirs of a decedent cannot inherit debt. The probate process is designed to make sure the estate assets pay off the debts instead. All debts have to be paid from the estate before heirs or beneficiaries can receive their share of the inheritance. If the estate debts are large, there may be nothing left for beneficiaries to receive, but there are no debts to inherit either. If an estate does not have enough assets to cover its debts, the estate is declared insolvent, and the beneficiaries still are not legally liable for them.
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