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Debt and Death: Managing Financial Obligations After the Death of a Loved One


Published August 28, 2023 • 3 Min Read

When a loved one passes away, it’s an emotional time fraught with grief, uncertainty and a considerable amount of paperwork for those left with the task of wrapping up the estate. Whether you’re an executor, trustee, spouse, or child of the deceased, dealing with the details of your loved one’s estate can be overwhelming. One of the common areas of uncertainty is what to do with any debt left behind.

Common questions about debt and death

Am I now responsible for paying their debt?

One of the natural questions asked about the debt left behind by a loved one is whether the beneficiaries will have to cover it now that they’ve passed away. The short answer is no; you will not inherit the debt or be responsible for paying it. The exception is if you shared a debt with your loved one (i.e., a joint credit card, loan, mortgage or line of credit) — in this case, the full amount of any outstanding debt falls to you.

However, outstanding debt doesn’t just disappear, either. While beneficiaries do not inherit the debt, the debt stays with the estate, so before any inheritance is paid out, the estate assets must first be used to pay outstanding debts.

What if there is more debt than the estate is worth?

If someone dies with no estate, generally, debts remain unpaid. If the estate has some assets, but the value isn’t large enough to cover the outstanding debts, there is a general order of priority. Certain debtors, such as the Government of Canada, have a legal right of payment over others. And if the estate can only cover partial debts, then a portion of debts will be paid up to the available funds.

How do I know what debt exists?

Your loved one may have been an open book about their financial situation, or they may have not shared much in the way of their money matters. If you don’t know what debt exists, the estate’s executor/ trustee is responsible for “advertising for creditors.” This may take the form of placing a newspaper ad for a few weeks to notify potential creditors of your loved one’s passing or using an online service such as NoticeConnect to connect with creditors across Canada.

If you’re the executor/estate trustee, advertising for creditors is an important way to protect yourself against liability, as you could be held liable for the debts of the deceased if you don’t take reasonable steps to notify those who are owed money. After a certain period, if no creditors come forward, you can proceed with wrapping up the estate.

Steps for taking care of your loved one’s debts

To ensure outstanding debts get paid and that the administration of your loved one’s estate goes smoothly, here are the four key steps to take:

  1. Create an inventory of all assets and assess their total value

  2. Create an inventory of all debts and liabilities, such as loans, credit card balances, unpaid bills and taxes owing

  3. Advertise for creditors to ensure you have an account of all outstanding debts

  4. Pay off the debts and file remaining taxes, then close the accounts

Once debts, funeral expenses and administration fees are paid, beneficiaries can receive gifts and any inheritance outlined in the will.

Estate planning is not just for the wealthy. Get your Estate Planning Guide to learn more about protecting the people you love and leaving a lasting legacy.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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