It's natural to panic when a loved one has died and you begin to realize that their medical bills and credit card bills havereallypiled up. Are you responsible for paying them?
In most cases, the answer is no. Generally, the decedent's estate is responsible for paying any outstanding debts. Exceptions exist, however, such as if you're the surviving spouse and you live in a community property state, or if you cosigned on a particular debt, but for the most part, heirs don't "inherit" debt.
Responsibility for paying off the deceased's billsand in what amounts depends on state law and whether the decedent's estate is solvent.
Key Takeaways
- The decedent's estate is responsible for paying any outstanding debts.
- A solvent estate is one that has sufficient assets and cash to pay off the decedent's debts after their death.
- In an insolvent estate, debts are prioritized and paid out accordingly, with recent medical debts usually taking priority.
- If you cosigned with the decedent on a credit card or an auto loan, this debt does not go away with their death and you will likely assume responsibility.
What Is a Solvent Estate?
The executor or personal representativeappointed to manage the estate will pay the decedent's bills as part of the probate process. An estate is said to be solvent if the decedent left sufficient assets and cash to pay off their debts after their death. The total exceeds the amount they owed when the value of everything they owned is added up, including money in their bank accounts.
The executor will use their cash and liquidate assets, if necessary, to pay off all bills and creditors.
The equation includes assets the decedent owned in their sole name and that comprise their probate estate. Assets that don't have to pass through probate to transfer to living beneficiaries are not included, such as retirement accounts with named beneficiaries or real estate that passes directly to a co-owner by operation of law. The executor has no control over these.
An Example
A decedent's estate is considered solvent if the value of all the decedent's assets adds up to $500,000 and their debts, including mortgages and car loans, equal $350,000. The personal representative can pay their bills in full, although she might have to sell the car and the real estate to cover those loans.
What's left—in this case, $150,000—goes to the beneficiaries named in the decedent's will, or to heirs-at-law if they did not leave a will. Heirs-at-law are individuals so closely related to him that they inherit by state law in the absence of an estate plan.
What Is an Insolvent Estate?
An insolvent estate is one that doesn't have enough assets to pay off all or even some of the decedent's bills. The total is equal to or less than the debts he owed when the value of their probate estate is tallied up.
The personal representative must prioritize payment of the decedent's bills according to state and federal law when an estate is insolvent. These statutes dictate which creditors should be paid in full, which will receive only partial payment, and which will get nothing.
Note
Creditors typically do not divide up the available cash and assets equally when an estate is insolvent. Instead, the debts are prioritized in accordance with federal and state law.
Medical bills take precedence in some states if they were incurred within a certain period of time before the decedent's date of death, usually 60 days. The personal representative would have to pay these and other "priority" debts first, and creditors such as credit card lenders would then proportionately share in any money that's left over.
Unfortunately, the decedent's beneficiaries or heirs-at-law typically receive nothing when an estate is insolvent, but neither are they responsible for paying off the balance of the decedent's unpaid debts.The companies that weren't paid in full usually have to write off their debts.
Nursing Home Bills
Nursing home bills can be tricky in some states. Several jurisdictionsallow these institutions to pursue adult children for some portion of their parents' unpaid medical bills if the estate can't cover them.
Note
Check with a local attorney if your parent passed away after a long and expensive stay in a nursing home. Find out your state's position regarding these bills and whether you have any liability.
Cosigned Debts
The situation also changes with debts that weren't taken in the decedent's sole name. If you cosigned with them on a credit card or an auto loan, this debt does not go away with their death even if their estate is insolvent.
Consumer law trumps estate law in this case and responsibility falls to you as the co-debtor. The lender has someone else contractually on the hook for the money, and it's totally within its rights to pursue the co-debtor for the entire unpaid balance, just as if the decedent had lived but had defaulted on the loan.
Marital Debts in Community Property States
Debts incurred by either spouse in community property states are generally considered to be equally owed by both of them, even if only one spouse contracted for the debt. They're effectively owed by the marital "community," not by either spouse individually, so the surviving spouse couldremain liable for these debts.
"Could" is the pivotal word. These laws can be particularly complex and can vary somewhat between the community property states: California, Texas, Nevada, New Mexico, Arizona, Louisiana, Wisconsin, Idaho, and Washington as of 2019.
If you live in one of these jurisdictions and your spouse has died, speak with an attorney to be absolutely sure you understand your rights and responsibilities. Some of these states do not consider that medical debts are owed by the marital community, but others do.
Note
In most cases, youwillbe responsible for at least some portion of credit card debts in community property states, whether they're in joint names or in just the name of your spouse.
If the Decedent Received Medicaid
States typically reserve the right to seek repayment of Medicaid benefits even when the decedent leaves an insolvent estate. This has the effect of pushing these debts to the front of the "priority" line for payment in insolvent estates, although the state typically can't pursue relatives for payment or attempt to collect if the decedent left a surviving spouse who is still alive.
Medicaid rules can be extremely complicated, and they can also vary from state to state. You'll want to speak with an attorney to find out where you stand if your parent or loved one was receiving these benefits.
Frequently Asked Questions (FAQs)
Can you negotiate medical bills with insurance after a death?
Hospitals and insurance companies sometimes are willing to negotiate medical bills, and they may be willing to do so after a death. This will depend, though, on the companies and their billing policies. If you are responsible for your spouse's medical bills after their death, for example, it might be worth calling and seeing whether the hospital will lower the charges.
How long does it take to settle medical bills after a death?
How long it takes to settle a person's medical bills after their death depends on the number of bills, how large they are, and whether the person's estate must go through probate. The probate process can sometimes be long, depending on how complex the estate is, which can increase the time it takes to settle medical bills.
