In general, when you die, your assets become part of what is known as your estate. If you created a will before you died, it would generally spell out two things: who the executor of your estate is—that is, the person responsible for ensuring your assets left behind when you died are distributed per your wishes—and how you want your assets distributed to various beneficiaries. Whether or not you made a will, a probate court will also be involved. If you had a will, the probate court makes sure that the executor distributes the assets per your will. If you did not have a will, the probate court would attempt to make sure your assets are distributed equitably.
The probate court will also make sure that all of your debt is paid off before the assets can be distributed to your beneficiaries. This debt would include credit card debt, mortgages, and any other liabilities you had outstanding at the time you died. In cases where the amount of debt you owe exceeds the value of your assets, there would be nothing left for distribution to your beneficiaries. On the other hand, if your assets exceed the amount of your debt, the remaining assets would be distributed per your will or as determined by the probate court.
However, there are exceptions to this process. One such exception is life insurance proceeds. A life insurance policy is a legal contract between a life insurance company and the insured. The contract essentially says that so long as you make the premium payments, upon the event of your death, the life insurance company will pay your beneficiaries the proceeds from the life insurance policy. Because of the nature of this contract, the life insurance proceeds go directly to the named beneficiary, not into your estate for distribution per your will or at the direction of the probate court. Therefore, as life insurance proceeds are not an asset considered part of your estate, a creditor seeking to have their debt paid by the estate does not have a legal right to the life insurance proceeds given to your beneficiary.
Another exception to the probate process is the death benefit from a pension. As with life insurance proceeds, so long as a beneficiary was named for the pension death benefit, the death benefit goes directly to the named beneficiary, not into your estate. Therefore, a creditor again does not have a legal right to the pension death benefit left to your beneficiary.
If you have other questions about estate planning or how other assets are treated when you die, you should consider speaking with an attorney to get guidance specific to your unique situation.