Estate Administration 101: What Happens to Debt After You Die?

When we talk about estate planning, we often talk about who should inherit your assets after you’ve passed away. But what happens if you die with debt? Will your loved ones be responsible for paying back your debt?

The laws pertaining to the repayment of debt after death are defined by each individual state, but the basic rule in Minnesota states that the debt of person dies with him or her. In short, your estate is responsible for paying off the balance of any outstanding debt at your death, not your loved ones.

When someone dies, all of that person’s money and property goes into something called an estate. An estate may or may not go through probate. We typically break an estate’s assets into two categories: non-probate and probate assets. Non-probate assets are those assets that have a joint owner, beneficiary designation, or other pay-on-death/transfer-on-death designation. As the name implies, non-probate assets pass to their intended beneficiaries outside of probate. Probate assets are any other assets that are held individually and that do not have a joint owner or other beneficiary designation.

In Minnesota, estates with probate assets valued under $75,000 and that do not own real estate are not required to go through probate. Any estate with probate assets exceeding $75,000, or that owns real estate that does not have a transfer-on-death designation is required to go through probate.

Once a probate has been opened, your Personal Representative will review your assets and debts, and guided by law, determine in what order any debts should be paid. Any assets remaining after all debts and expenses have been paid will be distributed to heirs according to the terms of your Will (if you die testate – with a will) or by the Minnesota rules of intestacy (if you die intestate – without a will). Even if your estate avoids probate, your bills will still be paid from whatever assets you possess at death. If your estate is insolvent, then going through probate will be necessary to pay your creditors.

When an estate is insolvent, Minnesota law dictates the order in which creditors get paid:

1. Any liabilities which arise after the death of the decedent, like funeral expenses and expenses of estate administration, such as attorneys fees;
2. Any federal taxes;
3. Medical/nursing home expenses of the decedent’s last illness;
4. Medical/nursing home expenses of the decedent’s final year of life;
5. Debts and taxes with preference under Minnesota law and state taxes; and
6. All other claims.

There are, of course, exceptions. In instances of joint property or joint debt, such as where someone co-signed a loan with the decedent, the surviving joint owner may be responsible for either paying or assuming the debt. Minnesota law also obligates a surviving spouse to pay for necessary medical services that have been furnished to either spouse and any necessary household articles and supplies furnished to and used by the family.

Practically speaking, at the time of death, all of a decedent’s individual debts must be paid out of his or her estate, not by his or her loved ones. Alternatively, if a debt is owned jointly, such as a mortgage or credit card, the surviving spouse or other joint owner would remain liable for that debt.

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Navigating the administration of an estate can be a complicated and confusing process. We're here to help.

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