Do you know that the USA has an average of three-quarters of its population who leave debt behind when dead? The last thing that anyone would want is lenders blowing up their loved ones’ phones to collect their credit card debt even before they heal from the pain. Legally, your family can’t pay your debts with their assets. Everything is from your estate during the probate process. The process depends on many factors, including joint account ownerships, loan co-signers and spouses. Here is everything you need to know about dying and leaving behind various types of debt.
After your death, those who could be on the hook for your debt include individuals you share a joint account with. Others include your spouse, co-signers for the loan, and executors who fail to comply with probate laws. Spouses will only be liable if they live in community property states like California, Nevada, Texas, and New Mexico. Debts that spouses will find themselves servicing include credit card debt.
Prevalent types of debt that can pass down to your beneficiaries include:
A credit card debt is quite flexible – the credit card company can’t recover its money if the estate can’t pay the balance. Into the bargain, the company can’t also coerce the card’s authorized users to service the loan. Spouses who live in community property jurisdictions will, however, be liable for any outstanding credit card debt.
If any of your family members is a beneficiary to a property whose mortgage is solely in your name the debt can pass directly to them. They will have an option of either paying the remaining instalments or selling the property to service the loan. Alternatively, the property may pay off the loan even before reaching the beneficiary.
You should note that you have beneficiaries who look up to whatever you might leave for them even before your time comes. Passing down a considerable estate ensures that your legacy lives on. Here are some important tips you can consider to cushion beneficiaries from your debts:
Living within your means is the surest way of passing on without dead-weight types of debt. That way, you can always minimize the chances of needing a loan, unless it goes to a sound investment that can repay it. You can also focus on repaying all your loans as soon as possible for an improved rating.
Do you know some investments will not be part of your estate? That means the beneficiary named to get it will do so without servicing any of your pending debts. Such investments include retirement accounts and non-taxable insurance payouts. Even so, if beneficiaries die before you, the payouts may go into servicing the outstanding debts.
Don’t forget that your estate can be an important safety net for your beneficiaries when you long gone. Besides, avoiding taking loans, paying your debts, and writing a will also go a long way in dictating how beneficiaries benefit from the estate. Most importantly, remember that creditors can’t take life insurance from you. You need a reliable one to cover your obligations when gone.