A lot of people worry about whether or not their deaths will leave their loved ones – especially their children – with a burdensome amount of debt.
From credit card bills to burial expenses and that inevitable final tax bill, it’s almost impossible to die without owing somebody something. How that debt is handled, though, depends very much on the individual situation. Here’s some things you need to know.
Your debts go to your estate, not your heirs
Debts that are solely in your name, such as a car loan or medical bills, go to your estate. Those debts have to be paid out of your estate before any remaining assets are distributed to your heirs.
If there’s not enough money in the estate to pay all of the debts, the debts are prioritized. Creditors with secured debts may be able to reclaim the collateral that backs their loans. For example, if you have a mortgage, the bank may foreclose. Creditors with unsecured debts, like any credit cards with balances due, will simply have to accept the loss – unless you have a living co-signer who is considered equally responsible for the debt. None of these creditors, however, can transfer your debts to your heirs. In essence, what’s in your estate will have to do.
Assets that bypass your estate don’t need to be used for your debts
It’s important to note that assets that transfer directly to designated beneficiaries never become part of an estate, which means those assets aren’t part of the equation when it comes time to figure out what debts need to be paid. For example, if you have a life insurance policy that pays directly to an adult child, that asset never becomes part of the estate’s probate process. Your beneficiary is entitled to keep that money, and your creditors cannot force them to use it to pay off your debts.
But – – Your funeral and burial costs may be a different story
Generally, your funeral and burial (or cremation) costs are supposed to come out of your estate. If there’s not enough money in the estate, your loved ones may have to pay the bill – but only if they sign an agreement with the funeral home to that effect. If you’re concerned about the potential financial strain that might cause, it would be wise to pre-plan and pre-pay your funeral expenses as part of your estate plan.
What’s important?
Have an estate plan. Every family is unique and therefore, each person’s plan is distinct. Having an experienced estate planning attorney can help you make the best decisions for your and your family.
If you, your parents, or your loved ones would like to discuss estate planning, give us a call at Monaco Cooper Lamme & Carr, PLLC. We are here to help.
Phone: (518) 855-3535
Email: info@mclclaw.com