Facing the unsettling reality of death is something no one wants to do. Unfortunately, without proper planning, your loved ones can be stuck with your debt after your passing. Credit card debt, car notes, student loans, tax liens, mortgages and medical bills, not to mention funeral expenses, can upend individuals who are not adequately prepared. Fortunately, with planning and expert advice from an estate attorney, it is possible to minimize the financial burden associated with passing on.
Credit Card Debt
Credit card debt is generally considered to be unsecured debt. That means when a cardholder passes away, credit card debt has a lower priority than debts such as mortgages. If the estate isn’t sufficient to cover credit card debt, creditors are out of luck. However, in community property states, surviving spouses are responsible for credit card debt created during the marriage. Likewise, if a spouse or other individual is a joint cardholder to the deceased, he or she becomes responsible for any unpaid bills.
Student Loans
Federal student loans are automatically discharged upon the death of the student. Likewise, federal PLUS loans taken by parents are discharged on the death of the student or the parent. However, the estate of the deceased borrower is liable for private student loans; although as unsecured debts, such loans may go unpaid if the estate is not sufficient to pay of the balance. On the other hand, cosigners of private loans are responsible for private student loans. Likewise, spouses in community property states are responsible for private loans taken during the marriage by the deceased student.
Mortgages and Home Equity Loans
Mortgages and home equity loans are considered secured debts, with the home serving as collateral. When a homeowner dies, a joint owner or the person who inherits the home becomes responsible for the mortgage or home equity loan, if the estate is not sufficient to pay off the mortgage. Many lenders will allow survivors to take over existing mortgage or home equity payments rather than attempt to repossess the house immediately.
Car Notes
Car notes are secured loans, with the vehicle serving as collateral. If the estate of the deceased cannot pay off any remaining balance of the car note, the lender can take the car. However, if a spouse or another individual inherits the car, he or she can often continue making payments on the car note and keep the car.
Nursing Home and Medical Bills
In many cases, nursing home and medical bills take precedence over other debts left behind by the deceased. While circumstances vary depending on specific circumstances, this means medical and nursing home bills must be paid by the estate before survivors would receive anything. If the estate isn’t sufficient to cover medical and nursing home bills, then survivors may inherit nothing. In rare cases, adult children may even be held responsible.
Final Expenses
Generally, the estate of the deceased is responsible for covering funeral expenses. However, if an estate must go through probate, it may be necessary to show proof of funeral expenses before the probate process can begin.
Protecting Loved Ones
Many people obtain life insurance policies to cover funeral and burial expenses. Life insurance can also cover secured debts such as joint credit card accounts, cosigned student loans, car loans or mortgages, leaving the estate intact for spouses, offspring or other survivors. Active duty military personnel and veterans are eligible to obtain excellent life insurance coverage from USAA. Its flexible coverage options and the financial strength of the company provide peace of mind in the knowledge that loved ones are protected when the policyholder passes away.
