My mother recently passed away. She had a trust, and she had a handful of credit cards that carried a remaining balance. She also had personal loans, which were used for home improvements. Her house is paid off, and will eventually be sold. She also has an IRA.
I am left with several questions. Do my mother’s credit cards need to be paid off or will they just be closed when the banks find out that she has passed away? What happens to the personal loans? If they all need to be paid off, is that done with the money from her IRAs?
Once I let the credit-card companies and the loan company know that my mother has passed away, will they freeze these accounts until finances are available to pay off any required debts? What steps do I need to take to stop all payments? Many thanks for your help.
The Son
Also see: My husband wants me to sign over 20% of my home. If not, he threatens to take half in a divorce. What should I do?
“If a retirement account has a beneficiary who is living, that account will not go through probate and pass directly to the beneficiary.”
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Dear Son,
These are some of the last things you probably want to deal with right now, but the sooner you alert the credit-card company and bank that your mother has passed away, and provide them with a copy of her death certificate, the sooner interest and other charges will stop accruing.
Banks recommend getting up to 20 copies of a death certificate to receive a payout from life insurance policies, claim a spouse’s pension, inform the Social Security or Veteran’s Administration, and to close bank accounts, credit cards, and cell-phone accounts.
Generally, debts are paid out of the estate, assuming there are no state-level exceptions or co-signers on the loan. “If the estate can’t pay it and there’s no one who shares responsibility for the debt, it may go unpaid,” according to this guide from the Consumer Financial Protection Bureau.
That does not mean creditors won’t try. “If you’re not responsible for a debt, debt collectors may still contact you if you’re a surviving spouse or oversee the estate, but it’s illegal for debt collectors to suggest you’re responsible for paying from your own money,” the CFPB adds.
However, state law may require a surviving spouse to pay a particular type of debt or require the executor/administrator of the estate to pay a debt jointly held by a surviving spouse; a community-property state may require marital property to be used to pay off outstanding debts.
If a retirement account has a beneficiary who is living, that account will not go through probate and pass directly to the beneficiary. “Typically, a decedent’s creditors will make claims only against his or her probate estate,” according to the law firm Midgett Preti Olansen.
“Because retirement accounts with named beneficiaries are non-probate assets, such accounts avoid the reach of the decedent’s creditors,” it adds. “If a retirement account never becomes part of the probate estate, it cannot be used to pay the decedent’s final bills.”
Credit cards should be stored in a safe place and/or destroyed to prevent them being lost or stolen, or falling into the wrong hands. You should also make sure all direct debits are canceled. Notify Equifax
EFX,
Experian
EXPGY,
and TransUnion
TRU,
and put a freeze on their accounts.
For all of the above reasons, it’s helpful to plan ahead. “Whenever possible, it’s a good idea to have a file of critical documents, bankbooks and more, all in one secure place,” says U.S. Bank. “You may also want to write down passwords, but be sure to keep them in a secure place.”
Can trusts be used to pay off debts? Irrevocable trusts are usually untouchable by debts after a person dies, but a creditor may make a claim on charitable or revocable trusts may in some circumstances. Whether they succeed, may depend on the discretion of the probate court.
The bottom line: “When you die, any debt you leave behind must be paid before any assets are distributed to your heirs or surviving spouse,” Experian says. “Debt is paid from your estate, which simply means the sum of all the assets you had at the time of your death.”
“The executor of your estate uses the assets in your estate to pay your outstanding debts,” the credit bureau adds. “The executor may be someone you named in your will or estate plan or, if you didn’t have a will or estate plan, a person appointed by probate court.”
This may be a surreal and traumatic time. It’s a lot of work for an administrator, especially if you are simultaneously grieving the loss of your mother. Deal with it one institution and lender and utility company at a time, and consult your attorney about the laws of your state.
More from Quentin Fottrell:
Is it OK for my new boyfriend to ask me to split the bill? ‘I don’t want him to get used to me paying for my own meals.’
My stepdaughter is executor to her late father’s will, and believes she’s now on the deed to my home. Is that possible?
I inherited $246,000 from my late mother and used $142,000 to pay off our mortgage. If we divorce, can I claim this money?
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter. The Moneyist regrets he cannot reply to questions individually.
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