If you have considerable debt, you may have concerns about passing those debts on to your heirs and loved ones through your estate when you pass away. Likewise, if you are the beneficiary of someone’s estate, you may be concerned about incurring your loved one’s debt and having to pay it back. In limited circumstances, an heir might inherit a debt. Read on for additional information.
Like all other states, Texas has specific codes that govern estates and succession. Texas does not impose estate taxes or inheritance taxes, but the estate may have to pay federal and state income taxes.
Estates and Debts
A decedent may not only have assets, but debts, as well. When the executor or administrator of the estate takes charge of the estate, those debts will have to be accounted for in the estate administration process.
In some instances, a debt may be forgiven upon the death of the debtor, but most of the time, creditors will seek recompense for the money they are owed. Upon someone’s death, all debts become part of the estate, and the estate’s assets must be used to pay off any debts.
By law, the executor or representative of the estate must provide notices to creditors of the estate owner’s passing through the following methods:
- Publishing a notice in a local newspaper
- Mailing a notice to the Texas Comptroller of Public Accounts
- Mailing notice to secured creditors
The notices should be published in the newspaper within 30 days of the executor’s appointment, and notices to secured creditors must be mailed as a certified or registered letter to secured creditors within 60 days of the executor’s appointment. Failing to do so can result in liability issues for the estate’s executor. Executors may also provide notice to unsecured creditors, but it is not required, and there is no established deadline for doing so.
Upon receiving notice of the decedent’s death, creditors will have a certain time to present a claim against the estate to recover their money. Any person or entity owed money by the decedent may present a claim against the estate. These people or entities fall into two categories:
- Secured creditors – Loans secured by collateral, such as a mortgage or car
- Unsecured creditors – Loans unsecured by collateral, like credit cards or personal loans
A creditor must present a claim against the estate accompanied by an affidavit to recover money, and the claim must show that it is just. It must account for the money owed. If the creditor is a corporation or other legal entity, then an authorized representative of the entity may present the affidavit.
Priority of Creditors
Just because a creditor presents a claim against the estate does not mean they will get the money they are owed. In fact, some creditors receive no money if the estate’s assets cannot cover all its debts.
However, certain entities take precedent over others, and the creditors are usually prioritized as follows:
- The IRS
- Funeral costs and final expenses up to $15,000
- Family allowances
- Administration costs
- Secured loans
- Owed child support
- State taxes
- Costs of incarceration
- Medicaid and state medical assistance payments
- Unsecured loans and other claims
An estate executor or representative has the option to accept or reject a claim, and they have 30 days to decide. If they have not decided after that time, the claim is considered rejected, and the creditor can file suit against the estate in probate court.
Will You Have to Pay Any Debts?
In general, heirs do not inherit debt after a loved one’s passing. In fact, federal student loans may be forgiven, depending on the situation, and credit card debt will not pass down to children. However, you may be responsible for your benefactor’s debts if any of the following applies:
- You were a co-signer on a loan with the decedent
- You are their adult child, and they passed off their mortgage to you as an inheritance
- You were married to them at the time of their passing
Texas is a community property state, and the state considers all assets, property, and debt to be jointly owned by both spouses. You can be held responsible for any debt your partner acquired during your marriage, even if your name is not on the account. However, you are not automatically liable for your spouse’s separate debt, and you need to review your situation with an estate or probate attorney to understand your options.
The experienced Dallas estate litigation attorneys of Staubus and Randall will review your situation and advise you of your rights and options. We are here for you in this difficult time, and you can contact us at 214-691-3411 to request a confidential consultation.