In an article with Yahoo! EN ESPAÑOL, award-winning estate planner, Gary Altman, Esq., answers questions about what happens to debts of the deceased. The full article can be viewed (in Spanish) here. Gary's complete responses are below:
60% of Americans will die without having a legitimate will in place. Even more shocking is that, according to a 2004 survey done by Lawyers.com, 80% of Hispanic American adults do not have wills, leaving their assets/estates to be divided and taxed according to predetermined federal and state laws, likely in ways they didn’t intend. There definitely needs to be a push to educate more Hispanics on the critical importance of proper estate planning.
Another issue that comes up frequently, not just with Hispanic families, but with all families, is not using a competent attorney or attempting to do their estate planning themselves (i.e. “Do-It-Yourself” Estate Planning). Using an attorney who doesn’t specialize in estate planning or attempting to draft legal documents yourself is a recipe for disaster and mistakes are not fixable once a person dies. The end result is paying avoidable estate taxes, attorney and court fees and possibly a loss of the assets altogether.
1. What happens to the bank accounts and credit cards accounts when someone dies? Bank accounts pass pursuant to a Will, unless the bank account is jointly owned with someone, is paid on death to someone (i.e. someone was named as a beneficiary on the account), or if it is held in a trust. Credit cards normally die with the person, unless someone is a co-applicant, in which case the credit card can be maintained, but the holder is liable for any unpaid amount.
2. Have the spouse, parents or children access to those accounts? How? When? If an account is in a decedent’s own name, then the account with pass on to them through the probate process. (Probate is the process at death used to transfer assets, protect creditors and make sure the Will is followed. With probate, paperwork has to be filed and there are fees. If there is no Will, probate makes sure law is followed.) Unless named on an actual credit card account, family members can’t access that account information and should not, otherwise the estate could become liable for the debt.
3. Can they access money from the deceased to pay for funeral expenses?
A family member can only access money from the deceased’s bank account if they were named as a joint owner or beneficiary (paid on death) or held in a trust with the right provisions.
IF not, who is responsible for those expenses?
The estate is responsible for funeral expenses, however, most funeral homes will not do anything without full payment up front.
Are there any programs (gov. or private) that help pay for funeral expenses?
Some states, counties and municipalities run programs that offer financial assistance for funerals, burials, and cremation to families with low incomes. However, what is available varies widely depending on where you live and, of course, is need-based.
4. What about medical bills or debts incurred by the deceased? Who is responsible for those payments – assuming that if there is insurance it would not pay or pays only a portion?
As for private, it’s possible that some church groups assist people who cannot afford the cost of a funeral, but that’s rare and not worth relying on.
Unless someone voluntarily said they were responsible, the decedent’s estate is responsible. Each state has a specific law dealing with unpaid bills or debts or creditors, so it highly depends on where someone was living when died. For instance, in Maryland, generally a creditor must file a claim within 6 months of death in order to receive payment. Otherwise, the debt or bill does not have to be paid.
5. Is insurance proceedings – life insurance benefits – subject to be used in debt payments of a deceased?
No, unless the life insurance is paid to the decedent’s estate which is not typical and normally a bad idea. It is also a bad idea to name minor children as insurance beneficiaries.
6. Recommendations from an Estate planner point of view for people with a lot of debt that may leave problems behind for the family.
A very loose rule of thumb is to make sure all assets pass to family members outside of probate, either through joint ownership, beneficiary designation or through a trust. That being said, every situation is different and laws vary greatly from state to state, so you should not do anything without advice from a competent estate planning attorney.
7. Recommendations on how to talk to the family about their legacy, any legacy (even more if this legacy is in the form of debts).
Discussing estate planning, death and legacy are touchy subjects for most people. Family dynamics play a big role in how one might approach discussing such sensitive topics (i.e. How many children one has, if a parent has remarried, if someone is terminally ill, etc.) My advice is that this is your life, your estate and your legacy. You should do what feels right to you, have it spelled out through proper estate planning and leave your family members with little to nothing to decide after you’re gone.
8. What happens to a mortgage loan if the mortgagee dies?
It continues. Let’s say the spouse is not in the note but is in the deed... she has to pay or else the lender will foreclose. Would he/she inherit the house but not the debt?
The spouse would inherit the house, but the debt has to be paid.
9. How the homestead exception applies/protects when one of the owners dies?
In some states, the homestead exception will protect the house from other creditors or limit the mortgage to just the house and not other assets.