With rare exceptions, no one wants to think about – much less talk about – what happens to their assets when they pass away. The thing is, estate planning is something that ends up being extremely important. When you die, does your debt die as well? Can debt be inherited?
A total debt amount of approximately $92,700 is experienced by the average American. This can include mortgages, auto loans, personal loans, student loans, and more. Which of those could present a problem to your family if you die? Are any of them forgivable? Might some even be simply written off and ignored?
Let’s see what happens after death, where your debt is concerned.
When You Die – Who’s Left Holding the Bag?
It is a tricky situation, determining which debts your family will be responsible for after you pass away. Generally speaking, after you die, your estate should pay for any debt that was in your name, and your name only. So, your possessions, homes, cars, bank accounts, etc. will all be figured into your estate. From that, your debts would be paid.
The executor of your estate will be figuring out its value, your debt, and the way to pay your debts and any inheritances (if anything is left over). What if you don’t have any assets, or not enough of them, to cover your debts?
Can Your Heirs Inherit Debt?
While it’s wonderful to leave valuable collectibles, jewelry, and family heirlooms behind when you die, if all your heirs inherit is debt, that’s not quite as nice. Hopefully, any debt you acquired will be covered by your estate. But after you’re gone, are there cases in which others will be legally responsible for the money you owed? The following may or may not be the responsibility of your heir or executor:
- Money owed on community property owned in community property states (Wisconsin, Washington, Texas, New Mexico, Nevada, Louisiana, Idaho, California, and Arizona). In these states, even if your spouse never actually agreed to it, they could be responsible for your debts.
- Any loans or bills that were co-signed by someone (a co-signer will be responsible for the debt).
- If there’s no money to cover them, unsecured debts may not be paid by your survivors (utilities, medical bills, personal loans, credit cards, etc.). In the case of credit cards, many times, the credit card company simply takes the hit and writes it off as a loss. On the other hand, if your estate doesn’t cover a secured debt, it may be the responsibility of your heirs (car loans, mortgages, etc.).
- Long-term care costs may have to be covered by surviving children of a parent (in 30 states).
- Timeshare maintenance fees may be the responsibility of your heirs after you pass away. Timeshare companies may still seek money from your heirs even if they refuse the timeshare. This can get sticky.
What To Do
Plan your estate! If you have considerable debt, the best thing to do is pay it off as soon as possible. If you’re worried about whether or not your heirs will be subject to paying your debts when you’re gone, make sure you have a life insurance policy that covers your debts completely, especially if you don’t feel your estate will cover them. Here’s where you can get some valuable advice…
Need to Concentrate on Estate Planning?
Protect Wealth Academy provides you with all the information you need about estate planning. Some of our provided services include stock market training, income tax reduction, asset protection, real estate training, self-directed IRAs, bookkeeping, and yes, estate planning.
If you’d like to find out how we can help your business, your family, or you, give us a call at 800-276-1430. You can also get started by filling out our convenient contact form online.
