“My mother died recently. She had about $20,000 in credit card debt. I am the executor of her estate. Do I have to pay that credit card debt or did the debt die with her?” I receive a question such as this quite regularly.
After a parent passes away, many children are surprised to hear from creditors. The immediate concern is often whether family members must personally cover unpaid balances. Understanding how debt is handled after death can help relieve unnecessary stress and prevent costly mistakes during the estate administration process.
When a person dies, all of her assets make up her “estate.” If a person dies with a last will and testament, the person is said to have died “testate.” If a person dies without a Will, the person is said to have died “intestate.” If a person dies testate, she typically nominated a person to serve as the executor of her estate and expressed how her property should pass—for instance, “to my children, to be divided equally between them.” If a person dies intestate, then she never appointed an executor, and her property will pass in accordance with the intestate succession statute. The intestate law directs the person’s property to pass to her closest relatives.
Let us assume that Mrs. Smith dies with a Will. She nominated her son, Joseph, to serve as the executor of her estate. Mrs. Smith owned a home worth $400,000 and bank accounts worth $200,000. She also had $20,000 in credit card debts.
The first thing Joseph, as the executor, must do is submit his mother’s Will to probate. This means that Joseph brings Mrs. Smith’s Will to the surrogate of the county in which his mother lived and proves that the Will is a valid Will. This is not an arduous process at all. Probating a Will takes about thirty minutes and costs about $200. Most Wills that attorneys have drafted are valid Wills.
Once the surrogate officially appoints Joseph as the executor of his mother’s estate, Joseph is a fiduciary of the estate. As a fiduciary, he owes the utmost duty of care to the beneficiaries of Mrs. Smith’s estate—her children, Joseph’s siblings. But, and this is important, Joseph owes a fiduciary duty to the creditors of Mrs. Smith’s estate.
There is a law that requires an executor to wait nine months after his appointment for creditors to present their bills. If an executor distributes the assets of the estate to the beneficiaries before nine months has passed since his appointment and if all of the creditors are not paid before the executor distributes the assets of the estate to the beneficiaries, then the executor is personally liable to the creditors. In other words, Joseph would have to pay mom’s creditors from Joseph’s own money if he failed to pay Mrs. Smith’s creditors.
An executor can dispute a bill. He does not have to pay every bill that is presented to him. Like Mrs. Smith could have when she was alive, the executor could claim that the bill is not legitimate for whatever reason and refuse to pay the bill. The executor could negotiate with the creditor and come to an agreement where the creditor accepts less for her debt. For instance, if Mrs. Smith has $20,000 in credit card debt, the executor could call the credit card companies and offer to pay $5,000. If the credit card company accepted the $5,000 as payment in full, then that is a great result.
What the executor could not do is simply refuse to pay the credit card debt because in the opinion of the executor Mrs. Smith is deceased so her credit card bill should not be paid. Debt does not die with the person if the person had assets to pay the debts at the time of her death.
If Mrs. Smith died with $20,000 in credit card debt and had no assets, then the debt would not have to be paid. The executor would not have to use his own assets to pay Mrs. Smith’s debts.
If Mrs. Smith had some assets but an insufficient amount of assets to pay all of her bills, then there is a statute that dictates in what order the debts should be paid. For instance, funeral expenses are paid first. The costs of administration are paid next. If debts with the same order of priority are left and there is insufficient money to pay all of those debts, then the debts get paid proportionately.
The short answer to the original question though is, yes, the executor must pay mom’s credit card bills if mom died with sufficient assets to pay those bills.