Dealing with the death of a loved one is never easy. The situation can become even more stressful for all involved when there are unpaid debts involved. In BC, most debts do not disappear; instead, they must be paid off through the deceased’s estate. While many people understand that debts need to be addressed, the details of how that happens are not always clear. Questions often arise about who is legally responsible, which debts take priority, and what effect this has on the inheritance a beneficiary might have expected to receive. Navigating these issues can be particularly challenging during an already emotional time.
Who Is Responsible For Debt After Death In BC?
The named executor of the will (or a court-appointed administrator in the event no will was written) is responsible for gathering and assessing all debts and liabilities owed by the deceased. All debts must be fulfilled before any beneficiaries receive an inheritance. Furthermore, the executor has to pay debts in a specific legal order of priority.
- Funeral and administration costs: These expenses relate to settling the estate and include funeral costs, legal and accounting fees, and probate application fees.
- Secured debts: These debts include mortgages, vehicle loans, and other debts tied to specific assets. If there’s not enough money to pay off these debts, the assets can be sold in exchange for rectifying outstanding payments.
- Preferred claims: Certain debts, such as unpaid wages owed to employees (if the deceased owned a business) or unremitted payroll deductions, may have statutory priority and must be paid before general unsecured debts.
- Unsecured debts: These include credit cards, personal loans, medical bills, and taxes owed to the CRA. If there isn’t enough money in the estate to pay them all in full, each creditor may receive only a portion of what they’re owed based on the available funds.
Can You Inherit Debt?
In general, beneficiaries and family members of the deceased do not inherit debt. You are not liable for paying off your loved one’s unpaid debts out of your own pocket, except for a few situations:
- You co-signed or guaranteed a loan for the deceased
- You held a joint credit account with the deceased
- You improperly received or used estate assets before debts were paid
What Debts Are Forgiven at Death?
There is one notable exception when it comes to debt forgiveness after death. If the deceased still owes federal or provincial student loans, the National Student Loans Service Centre will stop collecting on the debt. A proof of death must be provided, but once accepted, the loan is forgiven.
What Happens If the Estate Is Insolvent?
When an estate is insolvent, the deceased’s debts exceed the value of their assets. In these cases, beneficiaries wouldn’t receive an inheritance. Instead, whatever gifts they would have gotten from the estate are used to pay off unpaid debts. Beneficiaries aren’t held liable for the deceased’s remaining debts during insolvency unless one of the exceptions listed above applies. It’s also possible that the estate may not have enough assets to pay creditors in full, resulting in those debts being written off.
Speak to an Estate Litigation Lawyer
While Stephens & Holman does not prepare wills, we do represent beneficiaries and other parties in estate litigation across BC. If you’re involved in a dispute over debt after death, inheritance rights, or improper handling of estate funds, our experienced team can help. Contact us today to understand your rights and options under BC’s estate laws.