What Happens to Medical Bills in New York When You Die?

When you die in New York, your medical bills are paid by your estate (which is the total sum of your assets). If your estate is not enough, your heirs will not inherit your medical debts.

How Medical Debts Are Paid After Death in New York

When a person passes away in New York, any outstanding medical debts they owe become part of their estate. The estate encompasses all the assets and liabilities the deceased individual held at the time of their death. This includes real estate, personal property, bank accounts, investments, and debts, such as medical bills, credit card balances, and mortgages.

The executor or adminsitrator of the estate, who is appointed either in the deceased's will or by the court, is responsible for managing the estate and settling any debts. In New York, the executor or administrator must follow a specific order when paying off debts from the estate's assets:

1. Funeral expenses and administration costs

The first priority is to cover the costs associated with the deceased's funeral, burial, or cremation. This includes expenses such as caskets, urns, cemetery plots, and memorial services. Additionally, the executor must pay any administration costs incurred while managing the estate, such as court fees, appraisal fees, and attorney fees.

2. Taxes

The next priority is to pay any federal and state taxes owed by the deceased. This may include income taxes, estate taxes, and property taxes. The executor must ensure that all tax obligations are met before distributing any remaining assets to beneficiaries.

3. Other debts, including medical bills

After funeral expenses, administration costs, and taxes have been paid, the executor must address any remaining debts, including outstanding medical bills. If the estate has sufficient assets, the executor will use these funds to pay off the medical debts. However, if the estate's assets are insufficient to cover all debts, medical bills may go unpaid or be settled for a lesser amount.

Some assets may pass directly to beneficiaries, not used for medical debt

It is important to note that certain assets may bypass the probate process and pass directly to designated beneficiaries. These assets are not considered part of the estate and cannot be used to pay off medical debts. Examples of such assets include:

1. Retirement accounts

Qualified retirement accounts, such as 401(k)s and IRAs, typically have designated beneficiaries. Upon the account holder's death, the funds in these accounts pass directly to the named beneficiaries without going through probate. As a result, retirement accounts are protected from being used to pay medical debts.

2. Life insurance policies

Life insurance policies with named beneficiaries also bypass the probate process. The death benefit from a life insurance policy is paid directly to the beneficiaries and is not considered part of the estate. Therefore, life insurance proceeds cannot be used to settle medical debts.

3. Trusts

Assets held in a properly structured trust may also avoid probate and pass directly to the trust's beneficiaries. Trusts can be established during a person's lifetime or created through a will. By transferring assets into a trust, an individual can protect those assets from being used to pay medical debts after their death.

Heirs' Responsibility for Medical Debt

When a person dies with outstanding medical debt, their heirs are generally not held personally responsible for paying off those debts. The debts of the deceased are typically settled through the estate, and if the estate lacks sufficient assets to cover the debts, the remaining balances may go unpaid. This means that heirs won't have to use their personal funds or assets to satisfy the medical debts of their deceased loved one.

Exceptions to be aware of

While heirs are generally not personally responsible for a deceased loved one's medical debts, there are a few exceptions to this rule that are important to understand.

1. Joint account holders

If the deceased held a joint account with another person, such as a spouse or adult child, the joint account holder may be held responsible for any debts associated with that account. This is because joint accounts come with a right of survivorship, meaning that when one account holder dies, the remaining account holder assumes full ownership of the account and its associated liabilities. Therefore, if medical debts were paid using a joint account, the surviving account holder could be held responsible for those debts.

2. Medicaid estate recovery

Another exception to the general rule of heirs not being personally responsible for medical debts involves Medicaid. If the deceased received Medicaid benefits during their lifetime, the state may have the right to recover those expenses from the estate. This process, known as Medicaid estate recovery, allows the state to recoup funds spent on the deceased's medical care. The state may place a lien on the deceased's property or make a claim against the estate to recover the Medicaid expenses. In some cases, this can significantly reduce the assets available for distribution to heirs.

Inheritance may be reduced if estate pays debts

Although heirs are not typically held personally responsible for a deceased loved one's medical debts, the settlement of these debts through the estate can still impact their inheritance. If the estate has sufficient assets to cover the medical debts, the executor will use those assets to pay off the debts before distributing any remaining funds to the heirs. This means that the amount of inheritance each heir receives may be reduced, as the estate's assets are first used to satisfy outstanding debts, including medical bills. In situations where the estate's assets are insufficient to cover all debts, heirs may receive little to no inheritance, as the available assets will be used to pay debts according to the priority order established by New York law.

How an Estate Planning Lawyer Can Help Manage Medical Debt

An experienced estate planning lawyer like us can provide valuable assistance in managing medical debt and protecting your family's financial future. The first step in this process is to thoroughly assess your current financial situation and anticipate future medical needs. We will review your income, assets, debts, and insurance coverage to gain a clear understanding of your financial standing. We will also discuss your health condition and any potential medical treatments or long-term care requirements you may face in the future. By gathering this information, we can develop a tailored strategy to address your medical debt concerns and ensure that your estate plan aligns with your unique circumstances.

Asset Protection

Once your financial situation and medical needs have been assessed, we will work with you to develop effective asset protection strategies. These strategies aim to safeguard your wealth from potential creditors, including medical debt collectors, and preserve your assets for your beneficiaries. We could recommend various techniques, such as transferring ownership of certain assets to a trust, establishing a limited liability company (LLC) to hold investments, or leveraging homestead exemptions to protect your primary residence. By implementing these strategies, you can minimize the risk of your assets being depleted by medical debts, ensuring that your loved ones receive the inheritance you intend for them.

Last Will and Testament

A well-drafted will is also a cornerstone of any comprehensive estate plan. We will help you create a clear and legally binding will that outlines your wishes for the distribution of your assets after your death. In your will, you can specify how you want your property divided among your beneficiaries, appoint guardians for minor children, and name an executor to manage your estate. By having a clear will in place, you can ensure that your assets are distributed according to your desires and minimize the likelihood of disputes among your heirs. We will also help you keep your will up to date as your life circumstances change, such as after the birth of a child or the acquisition of new assets.

Trusts

In addition to a will, we may recommend establishing one or more trusts to shield your assets from medical debts and other liabilities. Trusts are legal entities that hold assets for the benefit of designated beneficiaries. By transferring assets into a properly structured trust, you can protect those assets from creditors and ensure that they pass directly to your beneficiaries without going through the probate process. We can help you determine which type of trust best suits your needs, such as a revocable living trust, an irrevocable trust, or a special needs trust. We will also guide you through the process of funding the trust and selecting a trustee to manage the trust's assets on behalf of your beneficiaries.

Life Insurance and Others

We may also recommend utilizing life insurance and other financial tools to help manage medical debt and provide for your loved ones. Life insurance can be an effective way to ensure that your family has the financial resources they need to cover medical expenses, pay off debts, and maintain their standard of living after your death. We can help you determine the appropriate type and amount of life insurance coverage based on your specific needs and goals. We may also suggest other tools, such as long-term care insurance to cover the costs of extended medical care, or a health savings account (HSA) to set aside funds for future medical expenses.

Dealing with a serious illness or injury is already a challenging and emotionally draining experience. The last thing you need is the added stress and anxiety of worrying about the financial impact of your medical debts on your loved ones. It's essential to remember that you don't have to face these concerns alone. By taking proactive steps to address your medical debt and estate planning needs, you can alleviate much of the worry and uncertainty surrounding your family's financial future.

The key to effectively managing medical debt and protecting your assets lies in working with an experienced estate planning attorney like us. We can help you develop a comprehensive plan that takes into account your unique circumstances, goals, and concerns. By collaborating with us, you can create a tailored strategy that addresses your medical debt issues while ensuring that your wishes are honored and your loved ones are provided for.

Should you need legal advice, you can call the Law Offices of Albert Goodwin at 212-233-1233 or send us an email at [[email protected].

We represent estate planning clients throughout the state of New York, including all five boroughs of New York City (Manhattan, Brooklyn, Queens, The Bronx, and Staten Island), Long Island, and Upstate New York.