When someone dies, with or without a will, their goods and property are distributed to their heirs and creditors. This process is called probate, and the legal steps can vary from jurisdiction to jurisdiction.
If the deceased has a will, it will name an executor, a person designated to see that the terms of the will are carried out. The executor can be a child of the deceased or other relative, or a completely unrelated person. The lawyer who drew up the will, if any, can be a valuable resource in guiding the executor through all the legal necessities of probate. His or her fee will be paid directly by the estate.
Probate has several phases. The executor must first make an accounting of all the property and assets of the deceased. Then creditors are informed of the death of the deceased and notified that they have a specific time frame in which they must present their accounting to the estate. The estate settles these debts out of the assets and distributes the remainder according to the will of the deceased. If there is no will, state law will determine how the assets are distributed according to degree of relationship with the deceased.
There is usually a specific period of time, such as six months, during which probate is usually held open. During this time, creditors must bill the estate, not the heirs, to recover any monies owed. Some less than scrupulous creditors will try to collect directly from the heirs, but they should be referred at once to the lawyer for the estate or the estate executor. If the debts outweigh the assets of the estate, the courts will determine how to distribute the funds to the creditors. There is no legal obligation on the part of the heirs to pay debts that the estate cannot otherwise cover.
Some creditors, such as major credit card companies, are so entangled in bureaucracy that they are unable to get their accounting in prior to the close of probate. If this happens, they are out of luck; they cannot require the heirs to pay the debt. Unless a child co-signed a loan for a parent, for example, he or she cannot be held accountable for his or her parents' debts upon their death. There have been cases of lenders going after the children of creditors to try to recover their losses, however. These attempts are strictly illegal in the US and should be reported to the state attorney.