Your Estate Gets The Bill

When someone dies, the money and property they leave behind generally become part of their estate.

Outstanding debts may need to be paid from those estate assets before what's left is distributed to heirs.

Imagine someone dies with $100,000 in estate assets but also has $25,000 in debts...

Those debts may need to be addressed before beneficiaries receive what remains.

And what if the estate doesn't have enough money?

In many situations, the unpaid debt simply goes unpaid.

Your children generally don't receive a bill simply because they're your children.

Your siblings don't inherit your Visa balance.

Your parents don't automatically become responsible either.

But there are important exceptions.

Your family generally doesn't inherit your individual debt. Your estate may still have to deal with it.

Different Debts Can Have Different Outcomes

Credit cards
An individual credit card balance generally becomes a debt of the estate.

If your spouse or child is merely an authorized user, that alone generally doesn't make them responsible for paying your balance.
A joint account holder is different.

Your mortgage

Death doesn't make the mortgage disappear.
There's still a loan attached to the property.
Depending on the circumstances, an heir or surviving family member may be able to continue making payments or otherwise work with the mortgage servicer.

The important point is... A $400,000 house with a $250,000 mortgage isn't the same as leaving someone a $400,000 asset free and clear.

Your car loan

The same basic idea applies to a financed vehicle.
You may own the vehicle.

But the lender still has an interest in it until the loan is satisfied.
The estate or person handling the vehicle will need to address the outstanding loan.

Student loans

Federal student loans have special rules and generally can be discharged after the borrower's death once acceptable documentation is provided.

Private student loans can be different.
The loan agreement, lender and whether someone else co-signed the loan can matter.

Joint and co-signed debt

This is where things change significantly.
If someone co-signed your loan, they're not simply a family member anymore.

They agreed to repay the debt.

Likewise, joint borrowers can remain responsible for shared debts.
That's one reason co-signing should never be treated as simply "helping someone qualify."

You're accepting financial responsibility for the loan.

Being Family Doesn't Automatically Make The Debt Yours

Imagine your father passes away with a $12,000 credit card balance.

A collector calls you.

You may immediately think... "I guess somebody has to pay this."

Maybe.

But that doesn't necessarily mean you have to pay it with your money.

Debt collectors can contact certain people about debts belonging to someone who died.

That doesn't automatically make those people personally responsible.

The CFPB specifically warns survivors not to assume they have to pay a deceased person's debt.

There are exceptions, including certain shared debts and situations where state law creates responsibility.

Never pay a deceased relative's debt from your own money simply because someone tells you that you should. First determine whether you're actually legally responsible.

Leave Your Family Information, Not Confusion

This article isn't really about death... It's about preparation.

Think about what someone would have to figure out if you weren't here tomorrow.

Would they know...

• what debts you have?
• where your mortgage is serviced?
• which accounts are individual or joint?
• where your retirement accounts are?
• what insurance policies you have?
• who your beneficiaries are?
• where important documents are located?
• who should handle your estate?
• whether you have a will and where it is located?

You don't necessarily need some elaborate system.

You need an organized one.

Create a financial inventory and make sure the appropriate person knows how to access the information when necessary... 

...And periodically review your beneficiary designations and estate documents.

Don't have a will yet?

If creating or updating your will has been sitting on your to-do list, LegalWills provides an online option for creating a will and other estate-planning documents. [Learn more about LegalWills]

Your family will already have enough to deal with.

Don't make them become financial detectives too.

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