Debt After Death: Who Pays? (8 min read)
There’s a popular saying that you can’t take your money with you when you die. But what happens when you die owing money? Who becomes responsible for that? Most people have some form of financial obligation when they die. So, it’s no surprise that this is one of the most frequently asked estate planning questions.
I’m going to walk you through this very important topic so you can plan ahead to protect your loved ones from confusion and stress.
Does Debt Go Away When You Die?
Absolutely not. But the good news is that most debts are paid out of your estate; your family members do not become personally liable for them. There are exceptions to this, and I’ll cover that in just a bit. First, let’s cover what an estate actually is.
A person’s estate is everything they owned when they passed away. This includes bank accounts, personal property, real estate, and investments. These are commonly referred to as “assets” of the person who passed, and they are usually transferred to others through inheritance or other means. If you have ever been the beneficiary of an inheritance, you know how this works.
What most people don’t know though, is that before any assets can be passed along to heirs, the debts of the deceased must be paid. And yes, that means exactly what it sounds like – beneficiaries come last. I know that sounds crazy but there’s a good reason for it and I’ll explain that further on.
It’s not so simple as just paying the bills though. If the estate has a will, or no will, and it is unable to qualify for a small estate filing, then the bills must be paid in a specific order of priority. Eash state has its own rules for what debts get paid first, but the probate court makes sure that order is followed.
Do these rules apply to trusts? Generally, but I’ll give you more specific details as we move forward.
When Are Family Members Liable?
As I mentioned previously, there are instances when family members can be held responsible for paying someone else’s debts after they die. Such as:
If they co-signed a credit card loan, or other account, they are just as responsible as the person who died. The creditor can legally require them to continue payments.
If they are a joint borrower on a credit card, loan, or line of credit they are fully responsible for any remaining balance.
They are a surviving spouse in a community property state. In states like California, Washington, Texas, and Arizona, spouses may be responsible for debts incurred during the marriage – even if only one spouse signed for it. Rules vary by state, so legal advice is important here.
They personally guaranteed the debt. This is more common in business loans, where a spouse or family member signed a personal guarantee.
They improperly received estate assets. If the executor distributes money to heirs before paying valid debts, creditors may have the right to demand repayment from those heirs – but only up to the amount they received.
Family members are not liable if they are simply related to the deceased, if they were an authorized user on a credit card, or if the deceased person’s estate has no money to pay the debts (unless of course one of the exceptions noted above applies).
So How Do The Bills Get Paid?
Well, that depends on the type of estate plan in place:
If there’s a will, the person named by the court as executor has the responsibility, typically under court supervision (known as probate).
If there’s not a will, then the probate court will assign a personal representative the responsibility.
What if there’s a revocable living trust? A trust doesn’t go through probate so it’s not bound by the rules of the probate court. But there are reasons why they often do anyway. I’ll explain why shortly.
In either case, the executor or trustee is responsible for:
Identifying what the person owned and owed
Notifying creditors
Paying debts in the correct legal order (I’ll explain this later)
Distributing what’s left to heirs or beneficiaries
What Debts Need to Be Paid?
As I said earlier, most everyone has some form of outstanding financial obligation when they die. Even the most financially responsible person usually leaves behind at least a final bill or two – think credit cards, utilities, or subscriptions.
The following are additional types of debt that are commonly encountered:
Medical bills
Mortgages and home equity loans
Auto loans
Personal loans or lines of credit
Unpaid taxes
Business or personal obligations
If someone happened to have a federal student loan, such as Perkins Loans or Direct Loans, that will usually be discharged after death. But if they have a private student loan, such as through Sallie Mae or Abe, then it will depend on the lender if it is discharged or not.
How Do You Find Out What To Pay First?
The probate courts are the ones who enforce the rules, so the easiest way to find out what your state requires is to either give them a call or ask an attorney. Naturally, the order varies slightly by state, but in general it looks like this:
Final expenses (funeral, burial, last medical bills)
Administrative costs (court fees, legal and accounting fees)
Taxes (federal and state)
Secured debts (mortgage, car loan)
Unsecured debts (credit cards, personal loans)
Beneficiaries
Here’s the reason beneficiaries are paid last: If they were to be paid first, the estate could run out of money and not be able to pay the debts of the estate. If you pay debts out of order, that would be taking a huge risk and could cause serious problems - including personal liability.
How Long Do Creditors Have to Make a Claim?
Fortunately, creditors can’t wait forever to ask for payment. State laws set a maximum timeframe creditors have to file a claim against the estate. Here’s the general rule:
Probate Estates – Most states give creditors 3 to 6 months after they’re officially notified (or after a notice is published in the newspaper) to file a claim.
Trusts – There’s no automatic claim period unless the trustee publishes a formal notice. Many trustees wait 4 to 6 months before distributing assets, just to be safe.
Unknown Creditors – In some states, creditors who were never notified may have up to 1 year to come forward.
Why does this matter? If an executor or trustee distributes money before the claim period ends and a creditor shows up later, beneficiaries may have to return part of their inheritance and, in some cases, the executor or trustee can be personally liable.
What If The Estate Doesn’t Have Enough Money To Cover Everything?
If that’s the case, then some debts may go unpaid. This is called an insolvent estate—and it makes it even more critical that payments follow the required order.
The Revocable Living Trust – Why Would Trustees Follow The Same Rules?
As I stated earlier, trustees are not bound by the probate rules the way an executor or a personal representative is. That’s because trust assets generally do not go through probate.
However, trustees do have a fiduciary duty to pay valid debts and expenses before distributing to beneficiaries—and many states require trustees to follow the same general priority of debts as probate estates, even if not technically subject to probate law.
For example, many state trust codes incorporate probate priority rules by reference, such as:
Funeral expenses and last illnesses are usually paid first.
Secured debts (like mortgages) must be honored before unsecured debts (such as credit cards).
Taxes and government claims often take precedence.
Failing to follow this order can create liability. Just like the estates going through probate, if a trustee pays beneficiaries first and then a higher-priority creditor files a claim, the trustee may have to personally cover the debt.
Even though most trust assets avoid probate, creditors can still make claims against a decedent’s trust asset, as long as it’s done within the legal timeframe allowed. States often follow a similar creditor claim period for trust assets as there is for non-trust assets, as outlined above.
What Happens If Something Goes Wrong?
Let’s face it - it’s not always smooth sailing. Here are examples of some common issues—and how to handle them:
A company refuses to close an account
→ Provide a death certificate and legal authority (letter from the court or trustee papers). Ask for a supervisor if needed.Debt collectors won’t stop calling
→ They’re not allowed to harass family members. You can demand in writing that they stop, and you can report them to:Consumer Financial Protection Bureau (CFPB): consumerfinance.gov
Federal Trade Commission (FTC): reportfraud.ftc.gov
Your state Attorney General’s office
The estate doesn’t have enough money to pay all debts
→ Don’t guess. Consult a probate attorney and follow state laws carefully. Some debts may be dismissed.The executor pays debts out of order
→ This can create legal trouble. If you’re unsure, pause distributions and seek legal advice before moving forward.
What If a Debt Shows Up After the Estate Is Closed?
Sometimes a surprise debt appears after everything’s already been distributed. What now?
The estate may need to be reopened.
The court can authorize the estate to be reopened so the debt can be resolved.The creditor may go after the heirs.
Creditors may demand repayment—but only up to the amount the heirs received. They can’t go after personal funds beyond that.The executor could be liable—if they made a mistake.
If the executor knew (or should have known) about a debt and failed to address it, they could be held responsible. But if they followed the law and acted in good faith, they’re usually protected.
Here are some tips on how to avoid this situation: Wait the full creditor claim period before distributing assets; Review credit reports and account statements; Consider holding back a small reserve for unexpected bills.
What If a Teenager or Young Adult Dies With Debt?
Understandably, we usually only think about the debt of an adult when considering this topic. But the reality is that even a teenager or young adult can die owing money. Here’s what you should know if you are faced with that situation:
Parents are not automatically responsible for their child’s debt, even if the child was a teen or young adult.
Parents are only liable if they co-signed a loan, were a joint account holder, or if the debt was in the parent’s name.
If the debt was in the child’s name only, and there are no estate assets to cover it, the debt usually goes unpaid.
How to Plan Ahead and Protect Your Family
Having an estate plan is all about making things easier for others. Including a plan to manage your debt after death shouldn’t be overlooked. Here are some suggestions on what you can do now to make things easier for the people you care about:
Create a will or trust—and name someone to be in charge
Keep a list of debts, account numbers, and login info
Tell someone where to find your important documents
Consider life insurance to cover final expenses or debts
Talk to your family so they’re not left guessing
The Bottom Line
Your debt doesn’t automatically become your family’s burden—but someone will still have to manage it. Whether you’re creating a plan or serving as an executor or trustee, knowing the process and following the rules can make all the difference.
Estate planning isn't just about who gets what—it's about leaving clarity instead of chaos. That’s exactly why I wrote A Very Simple Estate Planning Guide – to make these tough topics easier to understand and act on. If you haven’t already, grab a copy and take that first step toward making things easier for the people you love.
