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Estate Planning & Administration Law Blog

Monday, October 28, 2013

Estate Debts

I was recently asked this question and I thought it would be important to share the question and answer with others.

"If you are to receive an inheritance from a will and the decedent has debts that exceed the total assets held in the actual estate, will the beneficiaries of the will be held responsible for paying the debt of the decedent?"

Generally in North Carolina once debts are paid during probate from a decedent's estate funds, a beneficiary will usually receive the funds that remain from the estate (if there are funds left over). However the amount of the inheritance that you are going to receive can be affected indirectly and negatively by the debt. Your inheritance can be less or even become completely depleted if the debt exceeds the actual funds in the estate (meaning the estate is INSOLVENT). While it is true that you will not have to pay this debt from your actual pocket after your inheritance has been depleted, you are indirectly paying for the debts of the decedent through your inheritance.

It is important to remember that if the decedent had any debts that were shared with a surviving spouse, the surviving spouse will be responsible for those debts because it is martial debt. There are many other factors that must be assessed to determine if you will be responsible for a decedent's debt, especially if you were a co-signer or co-guarantor on a debt.

But generally if the total assets of the estate (including any inheritance) are depleted in paying off a decedent's debt, you as a beneficiary are not liable for any remaining debt and the debt will most likely be written off.

Note: The Executor of a will IS NOT PERSONALLY responsible for decedent's debts from his own assets, but generally as part of their duties they must notify creditors of the death, among many other things.  

Please remember it is extremely important to update your will if you have any major life changes (marriages, divorces, deaths of beneficiaries, etc.) and to make sure that you have all of your estate planning documents up to date! If you have any questions similar to these or need a consultation, please do not hesitate to contact me!

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