One of the concerns I often hear when meeting with families after a loved one has passed away is how to pay the decedent’s expenses and debts. If you pay for a loved one’s funeral and debts and there are no assets in the probate estate, then you may not get reimbursed for these out of pocket expenses.
Let me give you an example. Your sister suddenly passes away and at this very difficult time no one is sure what arrangements, if any, have been made for her funeral. In order to move the process of the funeral along, you volunteer to pay for the funeral thinking that you will get reimbursed for out of pocket expenses once the estate is settled. However, if your sister’s estate consisted of life insurance and a 401(k), your chance of being reimbursed for the funeral is uncertain. Life insurance and retirement accounts pass directly to the beneficiaries named on the accounts. As long as the accounts have beneficiaries, the life insurance proceeds and the 401(k) benefits avoid probate. It is up to the beneficiaries of the life insurance policy and the 401(k) account to reimburse you. They do not have a legal responsibility to reimburse you for the funeral. The only certain way to get reimbursed would be to file a claim in the probate estate, providing there are assets in the probate estate to reimburse you.
Unsecured debts of the decedent also get paid out of the probate assets. If a decedent has large debts such as credit cards, you will want to consult with an attorney before you start paying those debts. Even if there is a car debt or a mortgage you will want to carefully consider whether to continue to pay on the debt. If there is no equity in the asset you may not get reimbursed.
Furthermore, a spouse may not be responsible for the debts of the other spouse. If your spouse ran up credit card bills on accounts for which you bear no responsibility, you will want to consult with an attorney before you pay them. The attorney will be able to advise you of your responsibility to pay and also to what extent you will want to pay debts.
For these reasons and more, it is wise to seek the advice of an estate planning attorney in the process of settling an estate.