My life insurance policy will barely cover my funeral

When I die who or what process will be used to pay my debts?

When we die a new legal entity emerges, called a “Decedent’s Estate”. Sometimes all assets are held jointly with a spouse and the spouse voluntarily takes care of any outstanding hospital or medical bills, the funeral home and other debts, including credit card balances, and loans on vehicles or a house mortgage. The spouse may have legal responsibility because he or she co-signed on the loan with you. Or the spouse may pay because he or she knows that if he or she doesn’t pay the creditor can take legal action under the common law doctrine of necessaries to pay the last hospital bill or to seize an asset, such as a claim and delivery action on the car, a foreclosure on the house, or a mechanic lien for the balance owed on the new heating and air conditioning unit.

In many instances your “estate” may need to be probated, a process of administration which handles financial and property matters through a court appointed “Personal Representative” (the statutory term for the executor of the estate). The Personal Representative uses the authority granted to her or him by the probate court to resolve a deceased person’s debts and distribute remaining assets to those designated in the last will and testament as beneficiaries or to those established by state statute as heirs-at- law. A will provision may require a beneficiary to take property subject to a lien, such as an adult child gets the car but has to pay the balance owed on the loan.

You have probably seen legal notices in your local newspaper. The Notice to Creditors in the newspaper informs creditors of a debtor’s passing and how to contact the Personal Representative. In South Carolina a creditor has eight months from the running of this notice to file a claim with the probate court and the personal representative. Claims filed after this time period or not filed at all may be permanently barred and therefore be uncollectable.

The law of each state creates a pecking order for creditors. Higher priority goes to the funeral expenses, probate administration expenses, including attorney fees necessary to assist with probate, expenses related to a last illness and taxes. At the bottom are unsecured creditors like credit card companies and medical bills. If there are insufficient funds to cover all debts, then the beneficiaries may receive nothing, because all real and personal property may need to be sold to first satisfy lawful creditors. But as a general rule unsecured creditors are unlikely to go after surviving family members for the household goods in an estate when a debt cannot be paid, they are more likely to take a reduced amount or simply write off the debt. The Personal Representative can initiate a conversation with a creditor on how the debt will be handled and should put in writing any agreements to reduce the balance owed for potential filing with the probate court.

South Carolina has laws to help surviving spouses protect certain assets from creditors. How accounts, land and vehicles are titled can make a huge difference in what will actually be part of your estate. Before yielding any assets to a creditor family members should review the decedent’s estate with a qualified attorney that focuses his or her practice on probate.

Most of us would like to leave this world with our debt stamped Paid in Full. However, if life has handed you a set of circumstances that makes that unlikely, you should consult an attorney now. Sometimes a bankruptcy is needed, other times there may be resources available that you are unaware of to cover home care and other medical expenses to stretch your limited income. Peace of mind can also come just knowing what, if any, debts for which your family will be held accountable.

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