Two Ways You May Be Held Liable For A Decedent's Debt

Law Blog

It's unfortunate but sometimes people die with a lot of debt and very little assets. In a situation like this, the estate will typically be declared insolvent, and any assets that are available will be used to pay as much of the debt as possible. Since only the decedent is responsible for the debt he or she incurred in life, creditors who don't get paid will simply have to write off the amount owed. However, there are a couple of ways beneficiaries and heirs could be held responsible for paying the decedent's debt.

Transfer of Property Before Death

It's not unusual for people to transfer property, money, and other assets to their heirs and beneficiaries before they die, especially if they know they're about to pass away. However, transferring the assets in an improper manner could provide an opening for creditors to make claims against the inheritors. While it's not against the law for someone to transfer property to someone else before death, it is unlawful to do so with the intent to commit fraud and purposefully deprive creditors of their money.

For instance, a man dying of cancer gives his son access to his bank accounts and the son drains all the accounts of money two weeks before his father's passing. The creditor could make a compelling case that the son knew—or should've had reason to know—his father had debts that needed to be paid and purposefully withdrew the money to avoid paying them.

It is difficult to prove intent. However, if a creditor feels the evidence shows an intent to commit fraud, it can file a lawsuit against the heir and the heir would be responsible for paying the creditor if he or she lost the case.

The best way around this issue is to work with an attorney to make sure all transfers are aboveboard. For instance, it may be better for the asset holder to put property he or she wants to protect into a trust rather than sign it over directly to the beneficiary.

Heir or Beneficiary Assumes the Debt

Another way creditors can hold inheritors liable for debt incurred by the decedents is if the heirs or beneficiaries promises to pay the debt. The most common way this comes about is when the inheritor co-signs for a loan or credit card. Even though one person on the account has died, you would still be liable for paying the debt because you entered into a legal agreement with the creditor to do so.

Another way this happens is when an inheritor verbally agrees to take on the decedent's debt. This often occurs when the decedent requires end-of-life care. Spouses and children will often agree to pay the bills for the person's care. Even though the account may be in the decedent's name, the spouse or child may still be on the hook to pay because verbal agreements are enforceable.

It's important to be careful about what you say to healthcare providers when discussing your loved one's care. If you don't want to be held liable for any bills that may come due after your loved one dies, avoid making any statements the healthcare provider could use against you.

For more information about this issue or help resolving an insolvent estate, contact a law office like Lynn Jackson Shultz & Lebrun PC.


25 September 2017

File Chapter 7, and Keep Your Home

Many people assume that when they file Chapter 7 bankruptcy, they will have to give up their homes and other property. This is not necessarily the case. I am a bankruptcy attorney, and I have helped many clients file for Chapter 7 bankruptcy without giving up homes, cars, and other property. When you file for bankruptcy, the property you are allowed to keep depends on your individual circumstances and the state where you live. Most states allow exemption for property you are currently paying for. This blog will guide you through that information and help you determine if filing Chapter 7 bankruptcy is the right choice for you.