How to Protect Your Beneficiaries from Outstanding Debt

After a person dies, the last thing their relatives want is the pressure of lenders calling them to collect their loved one’s credit card debt.

According to the Federal Trade Commission (FTC), family members are usually not liable to pay the debts of a deceased relative with their own assets. Debts are typically paid solely by the deceased person's estate. However, this could depend on multiple factors, from to the location of where the deceased person lived to whether the account was a joint account to whether certain loans were co-signed.

This article will answer some of the most commonly asked questions about outstanding debts and explain how you can protect your own beneficiaries form outstanding debts.

After a debtor dies, what happens to the debt?

The estate of the deceased individual owes the debt to the lender. If a person’s estate contains solvent property and assets, and they had outstanding debts, the person’s lenders must be paid from the estate before the beneficiaries are paid. If there isn’t enough money in the deceased’s estate to pay off the debt, the lender will be forced to write the debt off and leave it unpaid.

When will others (family, friends, heirs, etc.) be liable for paying debts

Others are generally responsible to pay off debts in the following cases:

  • They are co-signed on a loan
  • They are part of a joint account with the deceased
  • They are spouses in community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin

Otherwise, the estate is responsible.

Who has the authority to handle the financial issues of deceased persons?

That is the executor, an individual who is identified in the deceased person’s will. If there is no will, the court may appoint an administrator, universal successor, or personal representative and put them in charge of financial matters.

A word on debt collector calls

According to the Federal Trade Commission (FTC), debt collectors can contact an executor, administrator, or guardian of the deceased to talk about unpaid debt. Collectors cannot mislead relatives into believing that they are liable for paying debts if they are not, and you have the right to tell a debt collector to stop contacting you by sending them a letter. Read here on the FTC’s website for more information.

How do I avoid burdening beneficiaries and protect them from outstanding debts?

Minimize the amount of debt you have by living below your means and keeping track of debt payments. offers a free credit report summary and personalized plan for improving your credit.

How do I start estate planning?

Planning for your own death may seem morbid, but it could be important to you and your family.

It is recommended to go to a lawyer to set up several essential documents, including the will, financial and medical powers of attorney, and a living will (also known as an advance medical directive. These documents will determine what happens to your possessions after you die. Make sure to periodically review beneficiaries to confirm those details are up-to-date, especially after a notable life event such as a marriage or divorce.

What creditors can’t take (things that aren’t part of your estate)

The following will go to named beneficiaries:

  • Life insurance payouts, which are not taxable
  • Retirement accounts

However, the death benefit from your life insurance may go into your estate (and thus be subject to creditors) if the life insurance beneficiaries that you listed are no longer living. For this reason, it is important to periodically review these beneficiaries and keep them up to date.

Bottom line

Talk to a loved one and discuss what’s important to you. Afterward, make your choices legally binding. This subject can be complicated. If you need assistance, be sure to consult with a probate attorney or a consumer law attorney.

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