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Are heirs liable for debt after a benefactor's death?

Many Ontario residents are unclear about the laws relating to the debts of an individual who has passed away. Some worry about being pursued by debt collectors after a relative dies, and others are concerned that their inheritance will be eroded by a benefactor's credit card bills and other debts. While a last will and testament is an important estate planning document, it addresses the distribution of assets and not the payment of debts.

In most cases, creditors can not require that a deceased borrower's debts be paid by a relative or other individual. This means that a credit card or loan company can not demand payment from the family members of one of their debtors who has died. However, there are situations where creditors can secure the payment for balances owed by a borrower who has passed away.

If the debt in question was under more than one name, the other parties on the account become responsible for the debt when the primary borrower dies. Individuals who are contacted by creditors seeking payment for such a debt should demand written proof that they signed the loan documents and are contractually responsible. If there is no cosigner on the account, the deceased individual's estate becomes responsible for the debt. A will allocates assets to heirs in accordance with the benefactor's wishes, but this only happens after the estate's debts have been settled.

While few individuals enjoy discussing end-of-life issues, failing to address these matters can have profound consequences. A lawyer with estate planning experience may be able to answer questions about allocating assets and settling debts and can outline options, such as insurance policies, designed to address these concerns.

Source: Debt Canada, "Inherited Debts or Debts after Death ", Motley Fool, October 21, 2014

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