Introduction
Ever wondered if debts are inherited along with assets? The quick answer is yes, but under specific guidelines. During the grieving period, the last thing you want is debt collectors calling to settle financial obligations of the deceased. However, they have the right to do so as these debts remain active and accrue interest.
Limited Estate Liability: What It Means
Firstly, it’s crucial to understand that debts do not transfer directly to individuals but must be paid using the deceased’s assets. This concept is known as limited estate liability, which means that the inheritor does not automatically take on the debt but is responsible for settling it using the deceased’s remaining assets before they can enjoy the rest.
According to attorney Teok Flores, “Inheritance encompasses both the positive aspects or assets and debts, as they form part of a person’s estate, which includes all your belongings, rights, and obligations. However, heirs do not pay with their own money; instead, they use the assets and rights of the estate.”
If there’s no inherited estate, no debt can be collected. Moreover, if the financial obligation exceeds the estate’s value listed in the will, only the listed assets’ worth can be used for payment.
Debt Transmission and Examples
Contrary to popular belief, all debts—including those with the tax administration (SAT), personal loans from relatives, high-interest cash loans, and bank debts—are transmitted through succession, explains attorney Roberto Ibarra, creator of “Tu abogado preferido.”
For instance, if financial obligations total 100,000 pesos and the estate is worth 80,000 pesos, the remaining 20,000 pesos are not owed since no one is obligated to pay them.
The Importance of Insurance
Typically, a deceased person’s bank credits are paid via insurance, according to the National Commission for the Protection and Defense of Financial Users (Condusef). However, there are exceptions you should be aware of to avoid jeopardizing your personal finances.
Financial products like credit cards, mortgages, and personal loans come with life insurance that covers the debt when the account holder passes away. However, timely payments are essential; late payments might result in the insurance not covering that debt. Additionally, life insurance on credit cards doesn’t apply if used after the account holder’s death.
“Bank credits don’t get canceled with death; instead, if certain requirements are met when the deceased holds the credit and there’s an active insurance policy, the insurance pays off the debt but doesn’t cancel it,” says Ibarra.
If there’s no insurance protecting the estate, debts that can be covered by the so-called inherited estate include mortgages or personal loans, SAT payments, and department store debts, as explained by Bravo.
In cases of mortgages or auto loans without an inherited estate or active insurance, financial institutions can seize the asset to recover part of what was lent. In this situation, if a family member wishes to keep the vehicle or property, they can pay for it out of their own pocket.
When Are You Responsible?
According to Condusef, there’s no automatic obligation for family members to pay a deceased person’s debts. However, two legal figures can imply this responsibility: being the deceased’s spouse or having been appointed as an heir to the estate, states Bravo.
If the debtor designated someone as a co-debtor or guarantor in a contract during their lifetime, that person becomes legally bound to continue making payments.
In such scenarios, maintaining clear control over any financial relationship with others—even close relatives—is crucial. It’s essential to leave clear financial obligation instructions while alive and ensure loved ones know where important documents are: contracts, account statements, and insurance policies, among other financial products.
Key Questions and Answers
- Do debts get inherited? Debts don’t transfer directly to individuals but must be paid using the deceased’s assets through limited estate liability.
- What is limited estate liability? It means inheritors are responsible for settling debts using the deceased’s remaining assets before enjoying the rest.
- What happens if there’s no inherited estate? No debt can be collected.
- Are all debts transmitted with succession? Yes, all debts—including tax administration debts, personal loans, high-interest cash loans, and bank debts—are transmitted through succession.
- How does insurance factor into debt payment? Insurance typically covers bank credits, but timely payments are essential. Life insurance on credit cards doesn’t apply if used after the account holder’s death.
- When am I responsible for paying debts? You can be obligated if you’re the deceased’s spouse or appointed as an heir to the estate.
- What should I do to avoid future problems? Leave clear financial obligation instructions and ensure loved ones know where important documents are.
