When you die, the debts you leave behind become the responsibility of your estate, which is everything you owned at the time of passing. Most people want to leave a good portion of their estate, their assets, to heirs. But without sound estate planning, paying off debts can eat up a substantial amount of your estate, leaving little to nothing for heirs and beneficiaries.
It gets worse, though. Generally, if your assets aren’t sufficient to cover debts, creditors are just out of luck. But that’s not always the case. Sometimes, other people, your heirs and loved ones, become liable for your debt. And that’s why it’s so critical to engage the services of a qualified estate planning attorney to ensure that this doesn’t happen.
The general principle holds that mortgage debt belongs to the borrower. Sometimes, though, more than one borrower, a surviving spouse, for example, is named on the mortgage loan, and then that other joint owner on the loan becomes responsible for the loan debt. Mortgage debt is not simply forgiven on the death of one of the borrowers.
An heir who inherits your home could also be held responsible for home-related debt. Federal law prohibits lenders from demanding immediate pay-off of a mortgage after the death of a co-owner. But the game changes when someone inherits a house with a home equity loan against it. In that case, a lender can force immediate repayment of the home equity loan – which often results in the inheritor having to sell the house.
In most cases, the credit card account holder is the only one responsible for credit card debt, and the decedent’s family members and heirs are off the hook for these debts. In addition, those who are just authorized users of the credit care are not responsible for the debt either. So, creditors are simply out of luck when estate assets are insufficient to pay off credit care debt.
Any and all joint credit card account holders would be responsible for unpaid debt. In addition, in community property states, spouses may be liable for credit card debt. Community property states are those where property and assets acquired during a marriage are automatically considered jointly owned.
When it comes to credit card debts, creditors will often use extreme measures to collect. You can, then, under the CARD Act, request the decedent’s outstanding balances. The card issuer has 30 days to provide the requested information and is not permitted to charge penalties or interest if the estate pays off the debt within 30 days after the balance information is provided.
Federal student loans are dismissed on the death of the borrower. Some private student loan lenders (Sallie Mae and Wells Fargo, for example) will forgive loans upon death. Others, however, will not.
Generally, co-signers of private student loans will be responsible for the remaining debt. And, again, in community property states, if the student loan was acquired during the marriage, the decedent’s spouse will be responsible for paying off the loan.
Responsibility for a decedent’s car loan debt will not fall to anyone else. If, however, the executor does not or the estate cannot pay the debt, the car will be repossessed. And whoever was designated to inherit the car will not be able to do so.
Don’t let your debts become debts for your heirs. Solid estate planning is that important. The experienced attorneys at Legacy Law Group of Northern Virginia can help you protect your assets, your beneficiaries, your heirs, and your family. Contact us for more information by calling (703) 492-9955 or by filling out the online form.