California residents may be interested in how their debts are handled after they are deceased. The answer often lies in the estate planning process. Assets that pass through probate are open to creditor claims before they can be distributed to heirs. The estate's personal representative must invite all reasonably ascertained creditors to make claims within the first four months of probate. The estate's assets cannot be distributed to the decedent's beneficiaries until the creditor claims process has been completed.
Probate is avoided by assets that are governed by beneficiary designations, like life insurance, retirement accounts and trusts. The trustee of a trust must still settle with legal creditors with reasonable claims, but the trustee is not required to make an open invitation to any and all potential creditors with legal claims or otherwise. Life insurance benefits are protected to a great extent from a decedent's creditors. The same is true for assets held within individual retirement accounts, 401(k) and similar retirement vehicles. Those assets are protected from creditors while the owner is alive as well.