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October 7th, 2024
Most Americans today have some form of debt. Whether it is a mortgage loan, a credit card, or medical expenses, people accumulate debt throughout their lifetime. As a result, many people die with debt, and loved ones may wonder what happens to the debts of a deceased person and whether they are responsible for the debt of a deceased relative.
Natalia Vander Laan is a Nevada probate and estate planning attorney who serves people in Minden and Carson City and throughout the Carson Valley. She can answer your questions about probate and estate planning and help you take proactive steps to manage debt after death. If you were named the personal representative of a loved one estate, she can provide legal advice and guidance and represent you in Nevada probate proceedings.
What Happens to Debt After Death?
When a person dies intestate, their estate generally goes through probate. Probate is the legal process of taking an inventory of a deceased person’s assets, paying outstanding debts, and distributing the remaining assets as directed by the deceased person’s Will or, if they died without a Will, according to the laws of intestacy.
When a person dies, the personal representative of their Estate must notify the deceased person’s creditors. Creditors have a specific window of time in which to file a claim against the estate. If the estate is valued at more than $100,000 but less than $300,000, creditors have 60 days to file a claim. If the estate is worth more than $300,000, creditors have 90 days. These deadlines are strictly enforced, and claims not filed within the prescribed time period are invalid.
A personal representative who receives notice of a claim against the estate must examine the claim to determine whether it is valid. If the claim is valid, estate debts are paid in the following order of priority:
- Expenses of estate administration
- Funeral expenses
- Expenses of last illness
- Family allowance
- Debts having preference by the laws of the United States
- Money owed to the Department of Health and Human Services as a result of payments made by Medicaid
- Wages, up to $600, for personal services rendered to the deceased person in the three months before their death
- Judgments rendered against the deceased person
If the estate does not have enough money to satisfy all debts, the estate is considered insolvent and creditors may not be fully paid or debts may be written off. However, the probate judge has discretion to assign a family allowance before debts are distributed to creditors with valid claims.
Does Debt Transfer After Death?
Most debts do not transfer after death; however, there are exceptions. Debt transfers to another person if they are:
- A co-signer on a loan;
- A joint credit card holder; or
- Community property owners.
Under Nevada law, property acquired during marriage is community property. Each spouse is entitled to an equal share of community property. When a spouse dies, the surviving spouse takes full ownership of one-half of the deceased spouse’s community property. The other half of the shared property can be used to satisfy the debts of the deceased spouse.
Can Debt Collectors Go After the Family of a Deceased Person?
The federal Fair Debt Collection Practices Act applies when debt is transferred from the original lender to a debt collector. The law provides specific limits on what debt collectors can and cannot do. Generally, debt collectors cannot contact anyone other than the debt holder. However, they are permitted to contact the personal representative of a deceased debt holder to attempt to collect a debt. If you are the personal representative of an estate and are contacted by a debt collector, you are entitled to the same protections as the original debt holder. You can limit the hours a debt collector can contact you, tell them to stop contacting you at all, or tell them to only contact your lawyer.
You can also ask a debt collector to prove the validity of any and all debts they are trying to collect. The debt collector must tell you who they are, the amount and origin of the debt, how the debt can be paid, and how to dispute or verify the debt.
Are You Responsible for the Debt of a Deceased Person?
When a person dies, most of their debt is paid during the probate process. However, because Nevada is a community property state, you may be responsible for paying some of your deceased spouse’s debts.
Estate Planning to Reduce or Eliminate Debt
A carefully prepared estate plan can reduce or eliminate debt after death. The most basic step is to create a Will that names someone to serve as the personal representative of the estate.
You may consider using a life insurance policy to protect your loved ones after your death. Because life insurance policies are non-probate assets, the death benefit will be paid directly to your beneficiaries, and creditors cannot make claims against it.
You can also give gifts to loved ones while you are still alive. You can use a lifetime gift to help loved ones while shielding some of your assets from creditors. However, there are laws that limit the number and amount of lifetime gifts you can make. Attorney Vander Laan, in collaboration with your financial advisor and tax professional, can provide legal advice to help you take advantage of lifetime giving strategies.
Contact The Vander Laan Law Firm Today
Natalia Vander Laan is an experienced and sought-after probate and estate planning attorney serving Nevada’s Carson Valley. Contact the Vander Laan Law Firm to schedule an appointment to discuss your situation.
Categories: Probate