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Debts and the estate

On Behalf of | Apr 27, 2017 | Estate Planning

When a person in Colorado dies, heirs may discover that the bills do not stop coming in. It is not typically the responsibility of the beneficiaries of the estate to pay the leftover debts out of their own pockets after the parent’s death. However, that does not mean the debt disappears, and it could still significantly affect the outcome of the inheritance.

According to the Federal Trade Commission, it is the job of the executor of the will to pay off unsecured debts using the assets of the estate. This is part of the probate process, and has to be taken care of before beneficiaries receive their portion. Creditors are not allowed to speak of the debt to anyone but the executor or another authorized person. Typically, it is only children who are cosigners on a parent’s account who become personally responsible for the debt.

The executor must also pay medical bills from the estate, CNN Money reports, and this may even involve reimbursing the Medicaid program for benefits a parent received after the age of 55. Because a person who qualifies for Medicaid often does not have many assets, a home may be the only source of repayment available, and this could involve a lien on the house.

A home with a mortgage on it may not necessarily be a responsibility an adult child wants to accept, although it may be that he or she could take over the mortgage payments, depending on the lender. If the bank forecloses on the home, the beneficiary’s credit score would only be affected if his or her name is on the property title. However, after the foreclosure, the executor may have to pay any difference between the sale and the money owed from the estate.

Many creditors may be willing to lower the amount due, so an executor and beneficiaries may benefit from attempting negotiations.