Collecting Debts on Behalf of Your Deceased Loved One

People often engage in transactions that result in money being owed to them, such as loaning money to a friend or business partner or renting a house to a tenant. But what happens if someone passes away before they receive the money owed to them? Can someone else collect these debts? If your loved one has died and you think they were owed money at the time of their death, keep the following information in mind.

Does the Debt Die with the Person?

The fact that someone dies does not mean that the outstanding debt owed to them disappears or is no longer owed. The debt survives the death of the creditor and is then owed to the deceased creditor’s estate. In fact, a debt that is owed to the estate is considered an asset of the estate. The estate is entitled to collect the debt as part of the probate process that includes the distribution of the deceased person’s assets to the beneficiaries named in their will or to the beneficiaries designated by state law if the deceased did not have a will. Similarly, if the debt is owed to the deceased person’s trust, the trust’s right and obligation to collect the debt continues after the trustmaker’s death.

Who Can Collect the Debt?

Before anyone can act on behalf of a deceased person’s estate, they must be appointed by the probate court. If the deceased person had a will, they probably named someone they trusted to act as their executor (also known as a personal representative). If the deceased person did not create a will, a person who is given priority in their state’s probate law, generally a family member, can petition the court to name them as the administrator of the estate. Once appointed, the executor or administrator of the estate is authorized—and has a duty—to act on behalf of the estate to collect the debt. Similarly, if a debt was owed to a deceased person’s trust, the successor trustee has the obligation to try to collect the amount owed to the trust.

How Can an Executor or Trustee Discover If the Deceased Person Was Owed Money?

If the executor or trustee is the deceased person’s spouse, they may be very familiar with the assets owned by their deceased spouse, including how much money their spouse was owed and who owed it, but a nonspouse executor or trustee may be less knowledgeable about the assets owned by the deceased person. All executors or trustees should examine the deceased person’s important papers and financial records to determine if there is any evidence that money was owed to the deceased.

Optimally, there will be a written loan agreement, mortgage document, or other contract that provides clear evidence of both the existence of debt and the terms of repayment. However, even if there is no formal contract, other written evidence—for example, an email or even a text message demonstrating that someone owed money to the deceased person—can be used to establish the existence and terms of the debt.

Although written evidence is considered more reliable, the trustee or executor may also rely on witnesses who heard the deceased person and the debtor discussing a loan or other business transaction to establish the existence and terms of the obligation. Similarly, debtors themselves may make statements to the trustee or executor acknowledging the debt.

What Happens After the Debt Is Discovered?

Once the executor or trustee is aware of a debt that is owed to the deceased person’s estate, they should provide a formal written notice to the debtor that the deceased person has passed away and the date of death, that the estate is their new creditor, and that future payments should be made to the estate via the executor or trustee. The executor or trustee should make efforts to collect any past due amounts and to facilitate the payment of amounts that will be due in the future, for example, rental payments for the remaining term of a lease agreement that extends beyond the date of death.

What If the Debtor Will Not Pay the Amount Due?

Although an executor or trustee will initially attempt to collect a debt by contacting the debtor and requesting payment of the amount due, if those collection efforts are not successful, they may need to seek the help of a lawyer to send a demand letter to the debtor or file a lawsuit on behalf of the estate to collect the amount owed.