When a loved one passes away, their debts don’t simply vanish. They instead become part of the estate administration process. The prospect of inheriting debt can feel overwhelming for heirs and beneficiaries. However, not all debts transfer directly to family members. Knowing how to handle debts within an estate is crucial to protecting your financial stability and ensuring a smooth transition of assets to your loved ones.

What Happens to Debt when Someone Dies?

The first thing to understand about a deceased person’s debt in Missouri is that Missouri law puts the burden on the creditor to collect the debt. While there are multiple statutes that deal with creditors in Missouri, the most impactful statute to be aware of is the one year bar created under Revised Statutes of Missouri § 473.444. That statute makes it clear that creditors must file their claim with the probate court within one year of the decedent’s passing or their claim is forever barred. Of course, there are exceptions for certain creditors. The majority of the exceptions are to protect the people administering the estate and the people that relied upon the decedent (i.e., surviving spouse and minor children) including 1) costs and expenses of administration, 2) exempt property, 3) family allowance, and 4) homestead allowance. Otherwise, the only protected creditors are the United States and any taxing authority within the United States…of course. There are other statutes that allow you to shorten that time period but they require you to open a probate estate and our goal as estate planners is to avoid probate court.

So what does this mean for the person who has the debt? The clearest direction is if you avoid probate in your planning then you increase your chances of avoiding creditors. Some simple ways to avoid probate is through beneficiary designations on your assets or through the use of a trust.

So what does this mean for the person administering the estate? If you are an executor, known as a personal representative in Missouri, of a probate estate or a trustee under a trust, do not rush to pay the deceased’s bills. In order for those bills to be valid they must file a claim in the probate court and prove their validity to a judge. As executor or trustee, you could be liable for paying bills that aren’t valid!

For debts that are proven to be valid by the court, they are typically paid from the estate before any assets are distributed to beneficiaries. If the estate’s assets are insufficient to cover the debts, some creditors may go unpaid, depending on state laws and the type of debt involved.

Generally, heirs are not personally responsible for the deceased’s debts, unless they co-signed a loan or jointly held an account. However, exceptions exist, such as in community property states, where spouses may share responsibility for certain debts.

Types of Debts and How They are Handled

There are four overall different types of debts to consider when going through probate. These include secured debts, unsecured debts, medical debt and student loan debt.

Secured Debts

Secured debts, such as mortgages or car loans, are tied to specific assets. If the estate cannot cover these debts, creditors may repossess or foreclose on the associated property. Beneficiaries who wish to keep these assets may need to pay off the remaining balance or refinance the loan.

Unsecured Debts

Unsecured debts, including credit cards and personal loans, are paid from the estate’s liquid assets. If the estate lacks sufficient funds, these debts may go unpaid, as creditors cannot pursue heirs for payment.

Medical Debt

Medical debt is treated similarly to unsecured debt and is paid from the estate’s assets. However, in some states, Medicaid recovery programs may seek reimbursement for expenses covered during the deceased’s lifetime.

Student Loans

Federal student loans are generally discharged upon the borrower’s death, meaning they do not need to be repaid. Private student loans, however, may follow different rules, and some lenders may attempt to collect from the estate or a co-signer.

Steps to Avoid Inheriting Debt

Start by identifying all debts and liabilities of the estate. This includes reviewing bank statements, loan documents and creditor notices. Work with the estate’s executor or probate attorney to ensure that all debts are accurately accounted for.

Prioritize Debt Payments

Not all debts are treated equally during probate. Estate laws often prioritize certain obligations over unsecured debts, such as funeral expenses, taxes and secured debts. Ensure that payments are made in the correct order to avoid legal complications. You can find the order in which debts are paid in Missouri in Revised Statues of Missouri § 473.397.

Avoid Personal Liability

Unless you co-sign a loan or are legally obligated, you are not personally responsible for the deceased’s debts. Be cautious of creditors who may attempt to pressure you into paying. Consult an attorney if you are unsure of your responsibilities.

Negotiate with Creditors

In some cases, creditors may be willing to negotiate reduced settlements, especially if the estate lacks sufficient assets to cover the full debt. Executors can work with creditors to reach agreements that preserve more of the estate’s value for beneficiaries.

Understand Your Rights

Familiarize yourself with state laws regarding debt inheritance and creditor claims. Many states have statutes of limitations on creditor actions, which may limit their ability to collect.

Protecting Your Financial Future

Dealing with a loved one’s debts can be emotionally and financially challenging. Taking proactive steps, such as working with an experienced probate attorney and communicating openly with creditors, can help you manage the process effectively.

Planning ahead is equally important. Encouraging your loved ones to create a clear estate plan, including an inventory of debts and assets, can prevent confusion and ease the burden on family members after their passing.

The attorneys at Frankel, Rubin, Klein, Payne & Pudlowski, P.C. can help you with either your plan or if your loved one didn’t have a plan in place before they passed. Book a call with an experience estate planning attorney today by clicking this link.

Frankel Rubin’s attorneys are licensed in Missouri and Illinois and our law firm services all of the St. Louis Metropolitan Area. We are especially convenient for estate planning in Clayton, Brentwood, Des Peres, Frontenac, Glendale, Webster Groves, Kirkwood, Ladue, Maplewood, Olivette, Overland, Richmond Heights, Rock Hill, Shrewsbury, Town and Country, Creve Coeur, Affton, Crestwood, Sappington, Sunset Hills, Maryland Heights, University City, Warson Woods, and St. Louis City.

Key Takeaways

  • Estate Responsibility: Debts are typically paid from the estate’s assets, not directly by heirs, unless they co-signed loans or reside in community property states.
  • Secured vs. Unsecured Debts: Secured debts may require repayment to retain assets, while unsecured debts are addressed based on estate liquidity.
  • Medical and Student Loans: Federal student loans are discharged at death. However, Medicaid or private loans may still seek recovery from the estate.
  • Avoid Personal Liability: Heirs should not assume responsibility for debts without legal obligation and can negotiate with creditors through the estate.
  • Proactive Planning: A clear estate plan with a debt inventory can prevent confusion and streamline estate administration for loved ones.

Reference: National Bereavement Service (2024) “Can you inherit debt?”