Estates: Creditor's Claims on Beneficiary's Inheritance

Q. If I die with substantial bills, and I leave the bulk of my money to a beneficiary, will my beneficiary be required to pay my bills using the money he inherited?

A. This is a very interesting question, so I checked with an estate attorney to verify my answer. Creditor claims are typically filed against the estate. Assets on which your children are the beneficiary are not considered a part of the estate so the probably are not subject to the claims of creditors.

I say probably because a creditor can file a lawsuit and if a judge determines that you were trying to hide your assets or intentionally avoid paying the claims of creditors, then the judge can pull that money back into the estate (and away from your children).

Most bank, brokerage and life insurance accounts can be transferred to beneficiaries outside of probate. Real estate, vehicles and personal possessions such as jewelry are more difficult to transfer. They would have to be gifted to the children several years prior to your death and would have tax consequences.

Many people utilize revocable living trusts to handle the transfer of their assets without the estate going through probate. In this situation, it is the responsibility of the trustee to make sure that all the claims are paid prior to making distributions to the heirs. It is my understanding that the trustee will be personally liable in instances where the claims were intentionally not paid.

I am not a lawyer, but this is my general understanding. I would recommend that you check with an attorney to verify all of the facts relevent to your situation.

Thanks for the question. If I can be of further help just let me know.

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