I was speaking with a senior couple the other day about survivor pensions and she happened to mention she would have to pay off his credit card  if he dies.  This is not necessarily the case.  Credit card debt in an estate is at the bottom of the list of who needs to be paid.  Let me explain.

If an asset is in both of their names, it bypasses the estate and ownership passes directly to the survivor whose name is on it.  For this couple, the home and vehicle are in both names. He does have a small balance in a bank account that is only in his name.  That account will be part of his estate.

Why is this important?  Credit card debt is unsecured.  They have no claim on any particular asset.  Only the deceased assets must be used to pay their outstanding debts.  If there are no assets in the estate, then the unsecured debtors are out of luck, legally speaking.

If the estate does not have enough assets to pay all the bills left by that person, there is a pecking order to what gets paid first.  First, secured debts must be paid when the asset they are secured by is sold.  Second, funeral costs, executor fees and legal costs associated with estate administration must be paid.  Only after that are unsecured creditors like credit cards paid.

So for the couple mentioned above, the house and car bypass the estate and the wife now owns them.  The estate of the husband would consist of his bank account, plus any amounts paid into the estate after death and any other assets in only his name.

If a life insurance policy is payable to his estate, that will also have to be used for his debts.  If it has a direct beneficiary that is not the estate, then it is not required to be used to pay the deceased bills either.

Am I saying not to pay the bills? No, I am saying find out if you are legally required to pay them before you hand over any money. If in doubt, always consult a lawyer.

This article is general advice to help you be aware of your rights and obligations.  It is not accounting or legal advice for you personally and does not constitute a client relationship.