It's a sign of these economic times that I encounter a number of people trying to learn about settling the estate of a loved one who died owing more money than their combined assets could pay (an insolvent estate).

I can often help by reassuring them that their own liabilities are minimal.  It helps to remember that the debts of the deceased person were not your debts.  You will not be responsible to pay them merely because you were the spouse or the parent or even the personal representative/executor.  However, no one can lay legal claim to any of the deceased's probate property unless and until the debts are paid.  So, no -- you may have to pay that credit card bill that was incurred by the deceased.  But no - your right to inherit that bank account may not be valid if the credit card bill isn't paid.  There are a lot of factors in this that I'm not going to cover, including whether the asset passes through probate or a beneficiary designation and whether the heir to the estate co-signed the credit card bill.

Yet it's becoming a recurring theme in my office that the family decides not to open a probate estate.  The reason:  There won't be anything left to inherit after the bills are paid.  So the family member who takes the job of administering the estate is really working for the creditors.  Now, the family member can often collect a fee for this task, but it usually isn't enough to make it worth the time.  Even if the deceased had been paying premiums for FHA"mortgage insurance" that may be to protect the mortgage company and won't pay off the mortgage so the heirs can inherit.

So, the family lets the house go into foreclosure (there was little or no equity), the bank account go unclaimed (would have gone to the credit card bills) and walks away.  The creditors have the right to open the estate and have a personal representative appointed.  They can do this to protect their right to collect something from the assets left behind.  But I rarely see this happen.  The house becomes a blight in the neighborhood and is eventually sold.  The mortgage company and credit card company suffer a loss.  That's the risk they took.  The unclaimed bank account may be eaten away by fees or eventually go the state as unclaimed property.

Is it the right solution?  I don't know.  In some instances the deceased could have prevented it by having life insurance.  But if the deceased was single with no dependents, who are they really trying to provide for?  I don't have any answers on this Monday morning.