Often, elderly people live on Social Security and no longer own a home, leaving them with little to no assets to pay for their funeral costs or pass on to their heirs. If they have debts, this can leave the executor of the estate in a tricky situation with creditors, as well.
Inventory Debts and Assets
One of the first jobs of the executor is to locate each of the person's accounts, whether they are assets or debts. List the name of the company that holds it, the amount in the account and whether it is a positive or negative balance. You also need to list each of the noncash assets, such as a home or vehicle, at its approximate market value. Add up the positive and negative amounts to determine whether the person actually has no assets.
Settle with Creditors
Any creditor that has a lien on an asset, such as a car or a house, will require that the asset be sold to repay the debt. Other creditors are out of luck. If the person truly has no assets in the estate, then the executor just needs to write a letter to the creditor and explain that the estate is insolvent, meaning that there is no money to pay the debt. Include a copy of the death certificate.
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In general, funeral costs are given a higher priority than unsecured debts when using the money in the estate. However, if there is no money at all in the estate, then the relatives will have to pay for the funeral costs. Surviving descendants should discuss how much they can afford to spend and plan the funeral accordingly. Cremation instead of traditional burial can significantly cut the cost.
When the person who died was only one of the account holders on a debt, the surviving account holder assumes the debt. This affects co-signed loans and credit cards with a joint account holder, but not credit cards with only an authorized user. In addition, in community property states where a debt benefited the spouse as well, a surviving spouse can be held liable to repay the debt.