What Happens to Debts in Intestacy?

State probate laws govern how to handle and administer a decedent's estate after death. Legal obligations of the decedent, such as debts, must be taken care of. In general, after creditors receive required notification of the decedent's death, they must prove what is owed. If they creditors fail to do so within a certain amount of time (which varies by state), the debt is typically barred from collection.

Intestacy

When a person dies without a valid will, she has died "intestate." State intestate succession laws dictate how her property will be distributed. To begin the proceedings, a family member must petition the probate court. The court will appoint a personal representative and the personal representative must then notify the decedent's heirs and issue.

Heirs and Issue

In intestate succession, only the decedent's immediate family members have the potential for receiving some share of the decedent's estate. The decedent's immediate family members are the decedent's heirs and issue. "Issue" means individuals directly related by blood to the decedent, such as children and grandchildren. Typically, the estate is left to the decedent's surviving spouse. If there is no surviving spouse, it generally passes to the decedent's children and grandchildren. State intestate laws dictate the exact percentages and procedures for distributing the decedent's property.

Debts Owed to the Decedent

The decedent's heirs or issue may owe a debt to the decedent. Exactly how the debt is handled depends on the state's probate code. Under the Uniform Probate Code, the debt only affects the share of the debtor. If the debtor did not survive the decedent, then the debt is essentially extinguished; it is not charged against the debtor's children. For example, assume the decedent's property is to be distributed to his daughters A, B and C. C owed the decedent a debt; C's share may be reduced by the debt owed. If C is dead, but left two children (the decedent's grandchildren), the grandchildren's share would not be affected.

Debts Owed by the Decedent

Problems arise when a decedent owed debts at the time of death. State law dictates how debts are settled upon death. In Wisconsin, for example, the intestate shares do not pass to the heirs and issue of the decedent until after all outstanding debts have been paid. The personal representative of the estate must notify creditors that the decedent died. The creditors must then petition the court for payment of the debt.