What Happens To Your Debt After You Die?
As they approach their fifties and beyond, many people begin thinking about the assets they will be able to leave behind for their children. Less time, however, is spent thinking about the debts they will leave behind and how these debts may impact the estate available to disseminate among the heirs. If you have descendants you hope to leave your estate to, it's time to take a critical look at your outstanding debts and how they may impact the inheritances you will be able to leave behind. Our estate planning attorneys at the Lake of the Ozarks are here to help.
Outstanding Debts Must Be Paid Off (If At All Possible)
As a general rule of thumb, outstanding debts must be satisfied using the assets within an estate before the estate can be distributed to the heirs. If you have a significant amount of debt, it may eat up the majority of your estate, leaving very little for your heirs.
There are a few exceptions, however. Typically, life insurance proceeds and the funds previously invested in retirement accounts such as 401(k)s and IRAs can avoid probate, allowing the money to go straight to the descendants instead of having to pass through probate and potentially being consumed by outstanding debts. If desired, life insurance can be used to satisfy outstanding debts; however, the benefits from a life insurance policy may go into probate and be subject to creditors if all the beneficiaries named on the policy are no longer living.
Here is a quick look at how each of the primary forms of debts may be paid off.
Mortgage Loans
The creditor may demand that the home be sold in order to recoup the mortgage debt if there is not enough money in the estate to pay off the outstanding balance. If the home simply passes to a spouse who held joint ownership over the home and the spouse continues to make the payments, however, he/she may be allowed to keep the property.
Car Loans
Generally, whomever inherits the vehicle will simply assume the responsibility for the monthly payments required to pay back the loan. If they fail to do so, however, the lender may exercise the right to repossess the vehicle. If no on wants to inherit the vehicle, the heirs may collectively choose to let the lender repossess the vehicle anyway.
Student Loans
If the estate has enough funds to repay existing student loans, the money may have to be used accordingly. If there is not enough money to repay these loans, however, the creditor will probably have to write it off as a loss. Regardless, some federal loans are discharged after death.
Credit Card Debt
Like student loans, credit card debt is an unsecured debt. If there is not sufficient funds within the estate to satisfy the outstanding debt, the creditors will probably have to assume the loss. However, if the account was in someone else's name as well (such as a spouse) the other individual will be responsible for the debt. If the other individual was simply an authorized user, however, he/she cannot be held responsible.
Who Can Be Held Responsible For My Debt?
Generally speaking, the following situations are examples in which someone else may be held responsible for your debt after you pass away:
Outstanding Debts Must Be Paid Off (If At All Possible)
As a general rule of thumb, outstanding debts must be satisfied using the assets within an estate before the estate can be distributed to the heirs. If you have a significant amount of debt, it may eat up the majority of your estate, leaving very little for your heirs.
There are a few exceptions, however. Typically, life insurance proceeds and the funds previously invested in retirement accounts such as 401(k)s and IRAs can avoid probate, allowing the money to go straight to the descendants instead of having to pass through probate and potentially being consumed by outstanding debts. If desired, life insurance can be used to satisfy outstanding debts; however, the benefits from a life insurance policy may go into probate and be subject to creditors if all the beneficiaries named on the policy are no longer living.
Here is a quick look at how each of the primary forms of debts may be paid off.
Mortgage Loans
Car Loans
Generally, whomever inherits the vehicle will simply assume the responsibility for the monthly payments required to pay back the loan. If they fail to do so, however, the lender may exercise the right to repossess the vehicle. If no on wants to inherit the vehicle, the heirs may collectively choose to let the lender repossess the vehicle anyway.
Student Loans
If the estate has enough funds to repay existing student loans, the money may have to be used accordingly. If there is not enough money to repay these loans, however, the creditor will probably have to write it off as a loss. Regardless, some federal loans are discharged after death.
Credit Card Debt
Like student loans, credit card debt is an unsecured debt. If there is not sufficient funds within the estate to satisfy the outstanding debt, the creditors will probably have to assume the loss. However, if the account was in someone else's name as well (such as a spouse) the other individual will be responsible for the debt. If the other individual was simply an authorized user, however, he/she cannot be held responsible.
Who Can Be Held Responsible For My Debt?
Generally speaking, the following situations are examples in which someone else may be held responsible for your debt after you pass away:
- Someone can be held liable under filial responsibility laws
- Someone else co-signed on a loan for you
If you have a significant amount of debt that may take up the inheritance you hope to leave behind, you may wish to consider taking out a life insurance policy to help satisfy these debts. If you believe that one of your heirs (or anyone else you know) is being unjustly pursued for someone else's debts, talk to an attorney at the Lake of the Ozarks immediately. We can help ensure that no one is taken advantage of by creditors.
The choice of a lawyer is an important decision and should not be based solely on advertising. When you need a knowledgeable attorney, we invite you to contact us to set up a consultation. Evening and weekend appointments are available. We have access to interpreters.
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Law Offices of Phillips, McElyea, Carpenter, & Welch, P.C.
The choice of a lawyer is an important decision and should not be based solely on advertising. When you need a knowledgeable attorney, we invite you to contact us to set up a consultation. Evening and weekend appointments are available. We have access to interpreters.
We accept Visa, MasterCard, and Discover.
85 Court Circle N.W., P.O. Box 559
Camdenton, MO 65020 GET A MAP
(573) 346-7231 - Telephone
(888) 236-2485 - Toll Free
(573) 346-4411 - Fax
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