Take a look at how people age around the world with this AARP special report: A New Age.
by Jonathan Pond, August 24, 2010
Q: How are my credit cards and other loans paid off if I die leaving outstanding debts? Are they paid from my estate before my beneficiaries receive their inheritances or some other way?
—Mary, 61, New York
A: When someone dies, debts are typically settled from what's known as an estate. The estate consists of the items of value owned by the deceased — think cash, cars, real estate and the like. Whatever is left over is passed along to heirs as dictated by the terms of a valid will, or in the absence of a valid will the terms of state intestacy laws. (See sidebar for definitions.)
So while the debts of a deceased person don’t simply go away, surviving family members aren’t necessarily saddled with them, either. Generally, unless a family member is somehow directly connected to the debt, say by cosigning a loan or holding a joint account, he or she isn't personally liable for the debt.
One important exception to this general rule involves residents of community property states including Alaska, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In these states, property that couples acquire during marriage can be deemed to be owned by both spouses. As such, when one spouse dies creditors might be able to target this property to satisfy debts incurred by either or both spouses during a marriage. Consult an estate planning attorney who's familiar with the laws of your state.
A key duty of an estate’s executor or administrator is to identify and pay off all debts before distributing what’s left to the heirs. This may result in heirs receiving a lower inheritance than they'd expected. Creditors are generally out of luck if there are insufficient assets to pay off all outstanding debts, absent a liable party like a joint account holder.
As for credit cards specifically, credit card issuers are required to stop tacking on fees and penalties during the time an estate is being settled. If debt collectors start calling family members of a deceased relative, refer those calls to the executor or administrator of the estate.
All the information presented on AARP.org is for educational and resource purposes only. We suggest that you consult with your financial or tax adviser regarding your individual situation. Use of the information contained in this website is at the sole choice and risk of the reader.
Please leave your comment below.
You must be logged in to leave a comment.
Get tips and resources to protect yourself from fraud and see the latest scam alerts in your state.
Members save 15% on in-store purchases of frozen yogurt, treats and apparel.
Exclusive program for members from The Hartford.
AARP members receive exclusive member benefits & affect social change.
You are leaving AARP.org and going to the website of our trusted provider. The provider’s terms, conditions and policies apply. Please return to AARP.org to learn more about other benefits.
Your email address is now confirmed.
Manage your email preferences and tell us which topics interest you so that we can prioritize the information you receive.
Explore all that AARP has to offer.
In the next 24 hours, you will receive an email to confirm your subscription to receive emails
related to AARP volunteering. Once you confirm that subscription, you will regularly
receive communications related to AARP volunteering. In the meantime, please feel free
to search for ways to make a difference in your community at