Inheriting debt in California is a concern for many people handling a loved one’s estate. While family members are generally not responsible for paying a deceased person’s debts, creditors can still make claims against the estate. This process can impact any inheritance and delay the distribution of assets. Understanding when heirs might be responsible for debt and how California law handles creditor claims is crucial for protecting your financial future.
Do Heirs Inherit Debt in California?
Most debts do not transfer to heirs, but they must be paid out of the deceased person’s estate before any inheritance is distributed. The executor of the estate is responsible for:
- Identifying and valuing assets such as real estate, bank accounts, and investments.
- Notifying creditors and paying debts from estate funds.
- Distributing any remaining assets to heirs.
However, you may be personally responsible for debt if:
- You co-signed a loan or credit card account.
- You held joint debt with the deceased, such as a mortgage or car loan.
- You are the surviving spouse, and the debt falls under California’s community property laws.
- You are the executor and improperly distribute assets before settling debts.
How Debt is Paid in Probate
In California, an estate goes through probate, where the court oversees the repayment of debts before assets are distributed. If an estate does not have enough funds to pay off debts, it is considered insolvent, and creditors may only collect what is available.
Under California Probate Code Section 11420, debts are paid in the following order.
- Secured debts (e.g., mortgages, car loans)
- Funeral expenses
- Estate administration costs
- Taxes and government debts
- Unpaid wages
- Unsecured debts (e.g., credit card balances, personal loans, medical bills)
If no assets are left after paying higher-priority debts, lower-priority creditors may receive nothing.
What Happens to Specific Types of Debt?
- Credit Card Debt – Unsecured debt is typically wiped out if there are no estate assets to cover it.
- Medical Bills – The estate is responsible, but survivors are not unless they signed an agreement to pay.
- Mortgages – A surviving heir or co-owner may assume the mortgage, refinance, or sell the property.
- Student Loans – Federal loans are discharged upon death, but private loans may still seek repayment from the estate.
- Car Loans – The lender may repossess the vehicle unless an heir continues making payments.
- Tax Debt – The IRS and state tax agencies can claim repayment from the estate before any inheritance is distributed.
Can Creditors Collect from Heirs?
Creditors may try to collect from family members, but in most cases, they cannot legally demand payment unless the heir is personally liable for the debt. If contacted by creditors:
- Do not agree to pay until verifying whether you are legally responsible.
- Request documentation showing the debt’s status in probate.
- Consult an attorney if you are unsure of your rights.
How to Protect Your Estate and Heirs from Debt
To prevent complications for your loved ones, consider estate planning strategies such as:
- Creating a Living Trust – Avoids probate and limits creditor claims.
- Designating Beneficiaries – Retirement accounts and life insurance pass directly to named heirs.
- Keeping Assets Separate – Avoid co-signing loans unless necessary.
- Planning for Long-Term Care Costs – Medicaid planning can prevent medical debt from consuming estate assets.
Conclusion
Inheriting debt in California is rare, but creditors can still make claims against a deceased person’s estate. Understanding which debts are paid in probate and when heirs may be responsible can help protect your financial future. If you are handling a loved one’s estate or want to protect your heirs from unnecessary debt, the attorneys at David Knecht Law can help. Call us today at (707) 451-4502 to schedule a consultation
