A very common question that we are often asked by clients is whether or not your family members will be responsible for the debt that you leave behind after you die. The answer to this question can depend on a number of circumstances. However, in general, the individual family members that you leave behind are not individually responsible for the debt that you leave behind. However, your estate likely will be responsible for the debts that you leave behind.
When you die with a Will or without a Will in Tennessee, an estate must be opened with the probate court. If you die with a Will, the family member that you named as executor is responsible for paying the final expenses and bills, paying the taxes, and disbursing the remaining assets to the heirs in accordance with your wishes as stated in your Will. However, if you die without a Will in Tennessee, a family member will have to petition the Court to be approved as Administrator of the estate, and once approved by the Court, their job, as Administrator, is essentially the same as that of the executor.
However, when it comes to the debts that you leave behind, your creditors will have the right to submit a claim by filing their claim with the court. The claim that they file will list the reasons and attach the supporting evidence on why the claim is valid. If the claim is valid, the estate will need to pay the claim before the executor/administrator will be authorized by the court to disburse the assets to the heirs.
Therefore, the executor must pay all valid claims and pay all taxes first, before dividing the remaining proceeds of the estate among the heirs equally, or in proportion according to the terms of the Will.
However, if there are not enough assets in the estate to pay all of the valid claims and taxes, the estate is considered to be insolvent. In this circumstance, if there are not enough assets in the estate to cover all the valid creditor claims, your surviving family members will not be responsible for paying those debts. However, an important distinction remains to be emphasized that this only applies to probate assets. This does not apply to any of your non-probate assets such as life insurance, 401(k) accounts, annuities, or any bank accounts that had proper transfer on death (TOD) designations. Therefore, these non-probate assets would not be reduced by the various creditor claims because these assets would pass to your loved ones and family members outside of probate.