Tom’s father recently passed away.  We have been friends for many years and share a love for movies and plays. Tom is a film and theatre historian and writer of some note. Needless to say, I am neither (hence, “movies and plays”). Tom, even with his vast erudition, is gifted with a profound lack of pretension and a genuine interest in the next person’s opinion. We are both great fans of the movies of Stanley Kubrick, Terrence Malick and the plays of Conor McPherson, Tom Stoppard. To listen to the two of us discuss favorite movies or plays would be like listening to Albert Einstein happily conversing with a high school physics student. In fact, Dr. Einstein did just that with an acquaintance of mine, an attorney who wrote to the great scientist when the attorney was a student at the Bronx High School of Science. Upon graduation from law school and marriage and leaving home, his parents discarded all his baseball cards and all his letters from Einstein!

When Tom’s father died, Tom’s great worry was that his father’s debts would become his debts. After a brief discussion on the nature of his father’s assets and how they were titled, I was able to reassure Tom of two things: 1) that not only could Tom’s assets not be used to pay his father’s debts, but also 2) that much of his father’s modest estate would pass to him without being subject to those debts. Why? Ah, thereby hangs a tale. Let’s tell it.

When a person dies, what happens to his or her debts?   Attorneys are allergic to categorical statements or answers. Hence, the attorney’s typical answer to any question is “yes and no,” or “it depends.”  In this case, however, it is accurate to say that debts survive the decedent and must be paid from the decedent’s estate assets before any beneficiary receives a legacy, provided these debts are valid and timely, and provided that they were part of the decedent’s probate or intestate estate.

What do we mean by a decedent’s probate or intestate estate? The term has a few meanings. There are several types of assets of a decedent that may be immune from the clutches of creditors because they do not “pass” through the decedent’s estate. It might be useful to illustrate this fact with an example.

Mom dies.  Her wealth consisted of the following:

  1. The house in which she lived. However, seven years before her death she deeded the house to her son and even filed a gift tax return.  At the date of transfer and death the house was worth $320,000 and $500,000, respectively.
  2. A bank account in the mother’s name showing a balance of $143,000.00.
  3. Another bank account opened with the mother’s money but created as a joint account with right of survivorship with her son.  The account contained $88,000.00.
  4. A 401k account that held $160,000.00 in assets and designated the decedent’s son as the beneficiary.
  5. A life insurance policy in the amount of $100,000.00 with the son designated as the beneficiary.
  6. An outstanding balance on the decedent’s American Express account of $18,000.00.
  7. An outstanding balance on the decedent’s MasterCard account of $22,000.00.
  8. An outstanding balance on the decedent’s Visa account of $11,000.00
  9. A private, unsecured debt supported by a promissory note on a loan from a friend in the amount of $200,000.

Decedent’s Will gave her entire estate to her son.  How much was in her probate estate?  The mother’s only asset that was subject to the Will is $143,000.00, the amount in her name alone in the bank account.

Decedent’s “total” estate assets (at least as it might be calculated by the IRS for estate tax purposes):

$500,000        The house[1]

$143,000         The bank account

$88,000         The joint bank account

$160,000         The 401k account

$100,000         Proceeds from the life insurance policy

$991,000         Total estate passing or passed to the son


Decedent’s “probate”[2] estate

$143,000         The bank account


Decedent’s Debts:

$18,000       American Express balance

$22,000      MasterCard balance

$11,000       Visa balance

$200,000      Loan balance

$251,000      Total Indebtedness

One might think that there were plenty of assets owned by the mother to satisfy all the debts. One would be wrong. The creditors of mother’s estate would be able to collect on their debts only from the $143,000 bank account, and that amount would be reduced by administration expenses (like attorney’s fees, heh, heh, heh). Mom’s remaining assets passed to her son by operation of law or by the designation of a beneficiary. They are immune from her creditors. I know, I know, you attorneys reading this will be saying to yourself, “but what if,” and “but suppose…” This is why we attorneys hate definitive answers to any questions. It is conceivable that there are circumstances under which some of these non-probate assets could be brought back into the estate and collected by the creditors.

But not likely.

[1]  Although the house was gifted to the son years before the mother’s death, and the transfer was a legitimate gift that did not render the mother insolvent, its value may still find its way into an estate tax return as an “adjusted taxable gift.” Happily for the reader, there is no need to consider this concept in any detail here.

[2] The “probate” estate consists of assets that will be governed by the decedent’s Will. The assets excluded from this list are not probate assets because they are governed by beneficiary designations or by the operation of law.