How Are Debts Handled After a Loved One’s Death?

Categorizing and paying a loved one’s debts during probate

The majority of people accumulate some debts during their lifetimes. Ideally, individuals would pay off their outstanding balances and eventually reach a point where they no longer have debt. However, if a person purchases a house or a car later in life, it is possible that they will continue to have loan payments to address.

Because each person and his or her financial circumstances differ, it is possible — and common — for California residents to die with outstanding debts. If you act as the executor of your loved one’s estate, the duty of addressing these debts and any creditor claims will fall to you. Therefore, you may want to understand the different types of liabilities you may come across.

Expenses and bills

Most of your loved one’s remaining debt will fall either into the category of administrative expenses or final bills. With administrative expenses, those liabilities will need to remain up-to-date until the estate comes to a close. Expenses in this category include examples such as:

  • Property taxes
  • Mortgage loans
  • Utility bills
  • Storage fees
  • Condominium fees

If probate has not yet opened, the beneficiaries of the estate may have the responsibility of keeping up with these expenses, if possible. After probate starts, you, as the executor, will have the responsibility of reimbursing the beneficiaries as necessary and then taking over the payments by using estate funds for the duration of probate.

When it comes to the decedent’s final bills, you may need to address expenses like the following examples:

  • Credit card bills
  • Cell phone bills
  • Personal loans
  • Income taxes
  • Loans against any life insurance policies or retirement accounts

The beneficiaries do not have to pay the final bills, and once probate proceedings get underway, you will handle these remaining debts from the estate funds. Unlike administrative expenses, which will have ongoing payments throughout probate, you can pay the final bills in full once probate opens.

Paying the right debts

In addition to categorizing outstanding debts as administrative expenses and final bills, most debts also need paying in order of priority. If you do not follow the right order, you could end up personally responsible for paying any applicable creditor claim. Because handling someone else’s financial affairs can be complicated, you may want to consult with an experienced probate attorney who could help you with this part of the process and the many other tasks you will address while closing your loved one’s estate.

The Law Office of Matthew C. Yu has the expertise and knowledge to assist you throughout the entire probate process. We will help you navigate the Court’s requirements for the administration of a probate estate so that the administration can be completed efficiently. If you are an executor of a probate, please contact us to schedule a consultation.