Free Confidential Consultation. Call Now! 410-299-4959

Maryland Estate Planning Lawyer: Dying With Debt; What Happens to Debt When You Die?

DebtClients often want to know what will happen to their debt when they die. Will their loved ones still receive assets? Will their loved ones have to pay-off their debt?

The answers to these questions depend first on whether the decedent’s estate is solvent or insolvent. A solvent estate is one where the assets of the estate are greater than the debt owed. An insolvent estate is one where the debt owed is greater than the assets of the estate.

Solvent Estate

With a solvent estate, the debt is paid and the remainder of the estate assets are distributed to the beneficiaries (also called “heirs”) per the instructions in the will and/or trust. Or if no estate plan was created, the state decides the distribution of the assets.

Insolvent Estate

With an insolvent estate, the personal representative or executor of the estate creates a distribution schedule of debt owed and pays the debt from estate assets. This often requires consultation with an attorney who is familiar with state and federal laws that provide guidance on the order of distribution, as some creditors could be entitled to payment before others. And some creditors may not be entitled to payment depending on the nature of the debt and how it is structured. For example, it is possible that a federal student loan will not require repayment; however a private student loan could depending on the agreement signed by the decedent with the lender.

With an insolvent estate in Maryland, the beneficiaries will likely not receive any of the estate assets as there will be none remaining after payment of debt. However, any debt obligations remaining would not transfer to the beneficiaries and thus would not become their responsibility to pay.

What happens to the family home when the estate is insolvent?

Under this scenario it is likely that the family home is sold to satisfy the debt owed. To avoid this unfortunate outcome, it is important to plan ahead and create an estate plan that will achieve a solvent estate and protect your assets for your family. For a free, confidential conversation to discuss these and other estate planning matters, or to create your own estate plan, contact Maryland estate planning attorney Stephen J. Reichert at 410-299-4959, or by clicking here.

Day, evening and weekend appointments are available in office or at your residence. Mr. Reichert personally serves clients in Baltimore, Baltimore County, Anne Arundel County, Howard County, Carroll County, Harford County, Frederick County and Montgomery County.