What If I Die With Debt?

Having a fair amount of debt is a financial reality for many people. More and more elderly individuals are finding themselves in the situation of having relatively high debt levels. For example, the amount of student loan debt held by individuals age 65 or older has grown rather massively over the past several years, according to federal data.

As more and more seniors are finding themselves facing high debt in their later years, one thing elderly individuals may increasingly have concerns about is dying while still owing debt. For one, they may wonder what effect dying with debt would have on their family members and other loved ones. This topic will be the focus of today's post.

If a person dies with debt, are their loved ones liable for the debt? Generally, the answer to this question is no. Typically, when a person dies with debt, it is their estate, not their loved ones, that is liable for their debts. There are, however, some exceptions to this general rule. For one, a deceased person's loved ones generally will have liability for debts that they held jointly with the deceased or that they cosigned for the deceased.

If a person dies while they still have active debts out, will the debts have impacts on what their family members and loved ones end up receiving from their estate? Debts of the deceased can end up having some pretty big impacts on what sorts of after-death gifts family members and loved ones of the deceased ultimately receive. As we mentioned above, a deceased person's estate typically is liable for the debts of the deceased. In the probate/estate administration process, the estate is supposed to pay debts of the deceased before making gifts from the estate to the deceased's beneficiaries. Thus, dying with debt can potentially greatly cut down the amount of assets available for after-death gifts to loved ones.

Thus, debts can be an important thing to keep in mind when it comes to one's estate planning. Estate planning attorneys can help individuals understand what impacts their debt levels could have on their overall estate planning situation. Such attorneys can also help individuals array their estate plan in a way that properly takes into account their particular debt-related concerns.

Source: CNBC, "Dying with debt can prove costly ... for the survivors," Ilana Polyak, July 6, 2015

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