{"id":7879,"date":"2016-02-11T07:10:57","date_gmt":"2016-02-11T13:10:57","guid":{"rendered":"https:\/\/www.senioradvisor.com\/blog\/?p=7879"},"modified":"2017-09-19T13:28:00","modified_gmt":"2017-09-19T18:28:00","slug":"what-happens-to-your-debt-when-you-die","status":"publish","type":"post","link":"https:\/\/d30braiqprupoq.cloudfront.net\/blog\/2016\/02\/what-happens-to-your-debt-when-you-die\/","title":{"rendered":"What Happens to Your Debt When You Die?"},"content":{"rendered":"

What Happens to Your Debt When You Die?\"What<\/h1>\n

Most people try their hardest to pay off debts and accrue savings throughout their lives in order to leave behind something for their loved ones. Unfortunately, our best-laid plans don\u2019t always work out perfectly. Debt is widespread in the US with the <\/span>average household carrying about $130,000<\/a><\/strong> in debt and <\/span>one in five people<\/a><\/strong> convinced they\u2019ll die before they manage to pay off the debt they have.<\/span><\/p>\n

So what happens if you don\u2019t pay off that debt before you die? Will your family be saddled with that mortgage and credit card debt you\u2019ve been trying to dig yourself out from under for years? The answer to that is (perhaps predictably) complicated.<\/span><\/p>\n

The Probate Process<\/h2>\n

The probate process is our country\u2019s way of trying to ensure that families don\u2019t end up stuck with the debt of a recently deceased loved one. Probate can seem like a pain for many families \u2013 it means that any property and assets a person leaves behind for their loved ones won\u2019t be released to them until after the estate undergoes a lengthy court process. But for many families, it can help ease the pressures of debts that have gone unpaid in your loved one\u2019s life. <\/span><\/p>\n

The Basics of Probate<\/h2>\n

When a person passes, their will and assets fall under the responsibility of an executor tasked with getting everything into order. Their job is to do a thorough analysis of everything included in the deceased\u2019s estate, make sure as many debts as possible are paid off, and then distribute what\u2019s left over to the appropriate beneficiaries in the will. <\/span><\/p>\n

It\u2019s often a big job that takes some time, so beneficiaries may not know what\u2019s coming to them (if anything) until some months after the deceased\u2019s death. The good news is that all debts become the responsibility of the estate. The bad news is that anything your loved one had \u2013 their savings accounts, home, family heirlooms, etc. \u2013 all become a part of the estate and may be levied to cover those costs. <\/span><\/p>\n

Types of Debt Covered in Probate<\/h2>\n

There\u2019s a hierarchy to how the probate court addresses debt. At the top of the hierarchy are funeral expenses, taxes owed, and secured debts like mortgages. All of these are considered priority and paid off first with the money included in the estate, and then with the money made by selling off any property needed to make up the difference.<\/span><\/p>\n

If a family member inherits a home or vehicle that isn\u2019t entirely paid off, they can usually hang onto that property simply by continuing to make payments. Lenders aren\u2019t usually too quick to force people out, although if your loved one had a home-equity loan, they may demand that you pay off the full amount immediately, which for most people means they\u2019re forced to sell.<\/span><\/p>\n

Next in the hierarchy come unsecured debts, which typically means credit cards, but can also include student loans. If there\u2019s enough in the estate to cover them, then the executor is obligated to do so. If not, the lenders are out of luck. <\/span><\/p>\n

Exceptions to Probate<\/h2>\n

The estate will take over the vast majority of the types of wealth and assets a person has in order to complete the probate process. There are a few exceptions to what gets covered in probate court though.<\/span><\/p>\n

Joint Debts<\/h2>\n

If you bought a house with your spouse and you were both co-owners, the debt is still considered yours under the law when your spouse passes. Your house won\u2019t become a part of the estate, since one of the owners is still living. \u00a0While you can\u2019t inherit any debt that\u2019s solely in the name of your loved one, you will inherit full responsibility for any debts you co-signed on. <\/span><\/p>\n

Retirement Accounts<\/h2>\n

If your loved one named a beneficiary on their individual retirement plan or 401k, those will go straight to the beneficiary rather than becoming a part of the estate. In rare cases, the government can still go after some of that money to pay off taxes that are owed, but usually that money belongs to the beneficiary free and clear.<\/span><\/p>\n

Life Insurance<\/h2>\n

The same thing goes for life insurance policies. If your loved one took out a life insurance policy to help make sure your family is covered, the money becomes yours upon their death, without getting tied up in the probate process and potentially going toward their debts.<\/span><\/p>\n

The Exception to the Exception: Community Property States<\/h2>\n

The law on what\u2019s covered by probate varies from state to state. Depending on where you live, some types of debt that are typically considered the estate\u2019s responsibility will fall on the shoulders of family members if the state determines that they were undertaken for the benefit of the family. If you live in a community property state and your loved one took out a mortgage on a home for the whole family to live in, for example, the mortgage may become your responsibility even if it\u2019s only in their name.<\/span><\/p>\n

There are currently 10 community property states, so know that the rules for you are a bit different if you live in one of the following:<\/span><\/p>\n