Chlidren and other heirs seeking assets from the estate of a deceased loved one may be disappointed if the estate has more debts than assets. If the estate cannot repay all debts, creditors may legally seize the entire estate, and in some states relatives must pay funeral expenses on their own.
Debt Repayment
If debtors owe more than the value of their estate at the time of their death, courts may liquidate the entire estate in order to repay the creditors. In some cases, creditors may leave some of the estate if friends or relatives offer to make up the difference with their own assets. Otherwise, creditors may seize stocks, real estate, life insurance payments and any other assets to satisfy debts.
Order of Repayment
When entire estates are liable to seizure, states make their own laws about the order of repayment. For example, Minnesota allows the estate to pay funeral and attorney costs related to the death before dividing the remaining assets between government and private creditors. Other states may not allow the estate to set aside money for funeral costs. Contact an attorney in your state to learn about state laws regarding the repayment of debt.
Relatives
If courts have depleted the estate and debts still remain unpaid, creditors may attempt to recover the remaining debt from the decedent's relatives, but they have no legal right to seize any relative's assets. Any assets belonging to relatives are safe, and any contact about repayment is merely a request and not legally binding.
Will
If the decedent leaves behind a will, the distribution of money described in the will applies only to funds left over after creditors are satisfied. If the estate has more debt than assets, the will's description of asset distribution is not valid.
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