October 29th, 2022 in Probate
Who pays for my debts when I pass away? While that seems like a simple question, the answer can be complex. The answer depends upon how you have planned and your estate plan, will, trust, account beneficiary designations, etc. There is simply no one answer that answers this question for everyone. It will also depend upon the type of debt, if there were co-signers for your debt and the type of assets and estate that you have upon your passing will determine who gets paid.
Most debts will not attach to your primary residence other than mortgages, taxes, homeowners associations and builder liens. However, the equity in the property may need to be used to pay your unsecured bills. Generally speaking, your estate will be responsible for your debts up to the amount of the value of the estate. This means if your bills are $1,000 and your assets are $600, your estate is only responsible for $600. The remaining $400 will be written off. Your heirs are not responsible for the remaining $400. What bills are paid is dependent upon the priority of creditors in the California Probate Code.
When setting up your estate plan, there are many different issues that need to be discussed. It is possible to have your estate pass to the beneficiaries without any bills being paid, depending upon how your assets are held. Each decision will have pros, cons and tax consequences so it is important to discuss your goals with your estate planning attorney. If you are a beneficiary of an estate or trust, it is important you understand how the assets and debts will be handled.