Can I Forgive a Debt in My Will

David opened a letter from his bank three months after his mother, Eleanor, passed away. The bank was freezing the estate accounts due to an outstanding $85,000 loan Eleanor had personally guaranteed—a loan David hadn’t known about. He quickly learned that, while Eleanor’s will left him everything outright, the creditor had a valid claim against the estate, wiping out his inheritance and triggering a costly probate fight.

Many of my clients, having spent 35+ years as both an Estate Planning Attorney and a Certified Public Accountant, are surprised to learn that simply stating a debt is “forgiven” in a will doesn’t necessarily eliminate it. A will speaks to the distribution of assets, not the cancellation of existing liabilities. Forgiving a debt while alive, or properly addressing it during estate planning, are entirely different matters. The consequences of inaction, as David experienced, can be devastating.

What Happens When a Debtor Dies with Outstanding Debts?

When someone dies with debts, those debts remain a liability of the estate, not the heirs. Creditors don’t simply disappear because of a death certificate. They have legal recourse to pursue payment from the deceased’s assets. The process is governed by California probate law, and it’s critical to understand how assets are distributed and the priorities creditors have in accessing them. A key concept is that heirs do not inherit assets free and clear of debt unless the will specifically and correctly addresses the debt forgiveness.

How Can I Legally Forgive a Debt Before Death?

The most effective way to forgive a debt is to do so during your lifetime. A simple, written agreement stating the debt is released is often sufficient, as long as it’s properly executed. However, there can be tax implications, which is where my CPA background becomes invaluable. A straightforward forgiveness could be considered taxable income to the debtor. A more complex approach might involve gifting strategies or other tax-advantaged methods. Understanding the step-up in basis of assets, and how capital gains taxes play a role, is essential.

Can a Will Specifically Address and Extinguish Debts?

Yes, but it’s not as simple as a declaration. To legally forgive a debt in your will, you must explicitly instruct the executor to pay the debt and release the debtor. This instruction needs to be clear and unambiguous. Critically, any distribution of assets must account for the debt. The executor will need to obtain a release from the creditor acknowledging satisfaction of the debt to prevent future claims. Furthermore, you cannot use a will to unfairly disadvantage creditors—California’s mandatory payment order, outlined in Probate Code § 11420, dictates which debts are paid first.

What is the Formal Creditor Claims Process in California?

California law requires that probate creditors follow a formal claims system. Under Probate Code §§ 9000–9399, creditors must file a formal claim with the probate court within a specific timeframe. This process allows the court to review the claim’s validity and determine its priority. Ignoring this process can lead to invalid claims resurfacing later, potentially jeopardizing your heirs’ inheritance. Executors are legally obligated to handle these claims responsibly.

What Happens if Creditor Claims Aren’t Filed on Time?

Creditors have a hard one-year deadline to file a claim against the estate after the date of death, as stated in CCP § 366.2. Importantly, this deadline is NOT tolled by the probate process itself. If a creditor fails to file within that timeframe, their claim may be barred. However, simply because a claim isn’t filed doesn’t mean the debt vanishes. The creditor may still pursue legal action against the heirs directly, depending on the nature of the debt and whether they can establish an independent basis for recovery.

What About Spousal Liability for Deceased Spouse’s Debts?

California law distinguishes between community property debts and separate debts. Debts incurred during the marriage are generally considered community property obligations, meaning the surviving spouse is liable. However, for debts incurred by the deceased spouse before the marriage or during the marriage but as separate debts, the surviving spouse’s liability is capped by Family Code § 910 and Probate Code §§ 13550–13554. This framework protects spouses from inheriting unlimited liability for their partner’s pre-existing financial obligations.

What if the Estate is Small?

If the estate’s assets are below the small estate threshold—currently Probate Code § 13100 = $208,850 for deaths on/after April 1, 2025—a simplified probate process may be available. While this can expedite the administration, it doesn’t eliminate the need to address outstanding debts. A small estate affidavit still requires proper notification to creditors and adherence to the applicable rules.

What standards do California judges use to determine a will’s true meaning?

In California, a last will and testament operates within a probate system that emphasizes intent, clarity, and procedural compliance. When properly drafted, a will does more than distribute property—it creates legally enforceable instructions that guide courts, fiduciaries, and beneficiaries through administration with fewer disputes and less uncertainty.

For California residents, understanding how intent, authority, and compliance interact is one of the most effective ways to protect family harmony and estate integrity. A will that anticipates probate scrutiny is far more likely to be honored as written and far less likely to become the source of unnecessary conflict.

Controlling California Statutes on Estate Debts and Creditor Claims

• Debt Priority:
  
  California Probate Code § 11420
  
  Establishes the mandatory statutory order in which estate debts must be paid before any distributions to beneficiaries.
• Probate Creditor Claims:
  
  California Probate Code §§ 9000–9399
  
  Governs how creditor claims must be formally filed in probate and why informal demands, letters, or invoices are legally ineffective.
• Creditor Lawsuit Deadline:
  
  California Code of Civil Procedure § 366.2
  
  Imposes a strict one-year deadline from the date of death for most creditor lawsuits, which is not tolled by probate proceedings.
• Surviving Spouse Liability:
  
  California Probate Code §§ 13550–13554
  
  Limits a surviving spouse’s personal liability for a decedent’s debts to the value of property received under these statutes.
• Small Estate Threshold:
  
  California Probate Code § 13100
  
  Sets the $208,850 small estate affidavit threshold for deaths occurring on or after April 1, 2025.