When a family loses a loved one, the grieving process is difficult under any circumstances. Family members should be able to focus solely on supporting and consoling each other. Unfortunately, even while the family continues to grieve their loss, they also face the task of making sure that their loved one’s financial affairs are put in order.
A question that often arises is whether family members are individually, personally responsible for paying their deceased loved one’s debts. Under most circumstances, family is not responsible for the debts of a person who dies. However, debts must be identified and paid to the extent there assets available in the estate. There is a very precise process established by law that must be followed to make sure that happens.
Who Is Responsible for Distributing an Estate?
If there is a will, the decedent likely named a personal representative, sometimes also referred to as the executor, to administer the estate. If there is no will, the court will appoint a person to administer the will. In either circumstance, the personal representative has substantial legal responsibilities with regard to the estate and should retain a lawyer to ensure that all those responsibilities are met.
A personal representative has a complex job and stringent responsibilities to the heirs and beneficiaries of the estate. Those responsibilities are described as fiduciary duties. That means they must be completed with the highest possible standard of care. The duties include carrying out the wishes of the decedent and complying with all requirements of the law.
In Michigan, the probate courts are charged with making sure that a decedent’s estate is distributed correctly. The court process is called probate administration. The actual process that the estate goes through is often referred to as estate administration, which includes all the actions that the personal representative is required to take in distributing and settling the estate.
Duties of a Personal Representative with Regard to Debts of the Estate
A key responsibility of the personal representative is to identify and notify all creditors of the decedent. There are specific statutory requirements applicable to creditor notices. Michigan estate law also sets time limits within which claims must be filed against an estate. If a creditor does not file a claim within the time limit, the claim will not be allowed.
The rules for paying creditors are complex. The law provides a priority in which claims are to be paid. The order of priority is:
- Administrative expenses and reasonable funeral and burial expenses
- Statutory allowances for the decedent’s family
- Debts and taxes with priority under federal law; expenses arising from the decedent’s last illness; debts and taxes with priority under Michigan law
- All other claims
If there are insufficient funds in the estate, including assets in a revocable living trust, to pay all the creditors, the estate may be closed without paying some claims or by resolving debts through partial payment.
Family members are not personally liable for unsecured debts of the decedent, such as credit card bills, medical expenses, utility bills, or personal loans, unless the family member co-signed the loan or account. Secured debts, such as a home mortgage or car loan, must be repaid in full, or the lender has the right to repossess the property that secures the loan. As with unsecured debts, family members are not personally liable for secured debts unless they co-signed a loan.
While family members are not responsible for debts of the estate, they may be required to return estate property that was distributed to them if it turns out the property is needed to satisfy debts of the estate.
By Don L. Rosenberg, JD, Principal partner at Barron, Rosenberg, Mayoras & Mayoras