Medical debt can be scary to think about—especially when planning for the future. But what happens to your outstanding medical bills after you pass away?
Many Californians worry that their loved ones will be stuck with an unexpected financial burden. The good news? In most cases, your family isn’t personally responsible for your medical debt.
However, in community property states, spouses may share responsibility for debts incurred during marriage, including medical debts. Additionally, if the estate lacks sufficient funds to cover medical debt, creditors typically write off unpaid bills, and surviving family members are generally not responsible for debts unless legally obligated.
Medical Debt After Death
Medical debt remains after death, and it becomes part of the deceased person’s estate. The estate is responsible for paying outstanding medical bills before distributing assets to heirs.
In most cases, family members are not responsible for paying medical debt unless they cosigned the debt or live in a community property state. However, if the estate is insolvent, creditors may receive partial payments.
Who Pays for Medical Debt from a Deceased Person’s Estate in California?
While unpaid medical debts don’t just disappear, they also don’t automatically transfer to surviving family members.
- Your Estate Pays First
- In California, a deceased person’s estate must settle any outstanding debts, such as medical bills, before assets are distributed to heirs.
- This means that creditors, including hospitals and medical providers, can make claims against the estate to recover what they’re owed.
- What if the Estate Doesn’t Have Enough Money?
- It may go through a process called insolvency, where debts are paid in priority order, and any unpaid debts are generally forgiven. Medical bills are considered unsecured debt, meaning creditors can’t pursue repayment from heirs unless legally obligated.
- When Would a Family Member Be Responsible?
- In most cases, children, spouses, or other relatives are not personally liable for a deceased person’s medical debt. However, there are some exceptions:
- If you co-signed for medical care, you could be responsible for any remaining balance. Credit card debt can also be claimed against the estate.
- If you were married at the time of death, California’s community property laws may mean that surviving spouses are responsible for certain debts, including medical bills.
- If you received assets through a living trust or beneficiary designation, creditors may have the right to pursue repayment before those assets are distributed.
Understanding these rules can help you plan ahead and avoid unexpected surprises for your family.
How Debt is Settled After Someone Dies
When someone dies, their estate includes all their assets, such as bank accounts, property, and other possessions. The estate is used to settle outstanding debts before heirs receive anything. This process is known as probate. Not all assets go through probate, including life insurance policies, retirement accounts, and assets with named beneficiaries.
The probate process follows these key steps:
- Step 1: Inventory of assets: The executor compiles a list of all the deceased person’s assets.
- Step 2: Payment of debts: The estate pays off outstanding debts, including medical bills, in a specific order mandated by state law.
- Step 3: Distribution of remaining assets to heirs: After debts are settled, the remaining assets are distributed to the heirs according to the will or state law.
During the probate process, the executor of the estate is responsible for paying outstanding debts, including medical bills. The executor must follow state laws and procedures to ensure that debts are paid in the correct order.
How to Protect Your Heirs and Surviving Spouse from Medical Debt After Death in California
These are a few steps you can take to ensure your surviving spouse and loved ones avoid financial or legal complications resulting from your medical debt, such as dealing with debt collectors or creditors:
- Create an Estate Plan
- A well-structured estate plan can shield assets and help manage a deceased person’s debts, including medical debt, efficiently. A revocable living trust is a great option for avoiding probate and keeping assets protected. Out estate planning lawyer can create a trust for you.
- Review Your Beneficiary Designations
- Some assets, like life insurance policies, retirement accounts, and payable-on-death bank accounts, pass directly to beneficiaries and are not subject to estate debt. Making sure these are set up correctly can ensure your loved ones receive these funds without creditors or debt collectors getting involved. The Best Coast Estate Law Team can help you select the right beneficiaries.
- Consider Long-Term Care Insurance
- If you’re worried about future unpaid medical bills, long-term care insurance can help cover costs and prevent medical debt from eating into your estate.
- Talk to an Estate Planning Attorney
- Every situation is unique. If you have significant medical debt or other outstanding debts and want to ensure your assets are protected, working with our experienced estate planning attorney can help you plan for the future.
Don’t Fret About Medical Debt: Get an Estate Plan
The best way to protect your heirs is to have a solid estate plan in place.At Best Coast Estate Law, P.C., we help clients navigate complex issues such as what happens to your medical debt after you die. Whether you’re creating an estate plan or managing a loved one’s estate, our estate planning experts can guide you through the legal process. Give us a call today to ensure your estate is protected, your medical debt is handled properly, and your family’s future is secure. We have estate law firm offices in Los Angeles and Palm Springs.
