The last thing you want to leave your family with after your death is to leave them with additional struggles. Your family deserves the time to mourn without having to worry about a collection of financial issues during the process. No one wants the debts they carry in life to pass on to become a burden for their loved ones. Estate planning is complicated in any situation, but it’s particularly true when the deceased person had unpaid loans, underwater mortgages, or unsettled tax debt.
There is no one answer for any situation – every person’s estate is unique. However, while it is possible for the responsibility of these debts to fall onto loved ones, it doesn’t have to be the case. There are ways to protect families from having to manage the debts of their loved ones after they have died. There are several variables when it comes to inheriting debt and the conditions in which it occurs. That’s why if you expect that you will have debts after your death, it’s critical to understand the specific strategies available to help your loved ones manage them after your passing.
Is a Beneficiary Required to Pay Debts Off With Their Inheritance?
As long as the beneficiary has completed a form detailing any accounts they are set to inherit, these assets or funds cannot be attacked by creditors looking to collect after death. The beneficiary must be named as well to reap the benefits of inheriting something like a 401(k) or life insurance policy. If a benefactor was not determined before death, however, the estate itself would collect these assets, and it would be a prime target for creditors.
If you have debts and still want to ensure your family or friends receive the gifts you’re leaving behind for them, you will want to have a valid will in place that names them as beneficiaries. By having your estate plan finalized before your death, you can be sure they receive and maintain control of the assets you wish for them to inherit.
Who Is Responsible for Any Credit Card Debts After Death?
Any credit card debts can demand payment from the estate of the deceased, using any assets and funds in the estate to cover leftover bills and debts from credit cards. Family members can also be responsible for these debts in some cases in which the spouse or children were joint owners on a credit card account. Some states also dictate that a spouse take one credit card debt responsibility under community property state regulations.
It’s important to note that as long as you were a joint signer on a credit card application, you are responsible for that debt, even if your spouse is the only one who accrued debts through the card. This can be different for individuals who are authorized users for the card, with debt responsibility not necessarily passing to you.
If you are being held responsible for a debt you don’t believe is yours to manage, an estate law attorney can be a helpful asset to defend your rights and clarify who is actually liable in a credit card debt situation.
What Happens to Student Loans After Death?
If an individual who borrowed the student loans has died, all federal loans are forgiven. This is applicable whether the borrower was a student or these loans were borrowed by a parent on behalf of their college bound kids. To have these debts canceled, the estate must submit a certified or original copy of a death certificate.
Regarding private student loans, this is up to the lender. Some private institutions have agreements built in for forgiving loans at death, though there are cases in which any unpaid student loan debts will be charged to the deceased’s estate.
What Happens to a Mortgage After Death?
Upon inheriting a home with a mortgage that hasn’t been paid off, the law allows the inheritor to take over the mortgage. The main reason this exists is to prevent a situation in which an inheritor is unable to qualify for a mortgage would make it impossible for an heir to maintain the house.
In the case that a mortgage is jointly owned by a married couple, the spouse will simply take on all responsibilities of the mortgage. They also have the option to refinance or pay off the mortgage as well.
Q: What Happens If I Inherit a Property But Can’t Afford the Mortgage Payments?
A: If you are inheriting a home or property that has a mortgage you cannot afford, there are a number of steps you can take to find a more affordable way to keep the home. The biggest concern to look out for is comparing the property value to the mortgage that is officially owed, then determining a path forward from there if it’s worth keeping the home.
Q: If My Spouse Passes Away, What Debts Am I Responsible For?
A: The spouse of the deceased is responsible for any joint-owned taxes, accounts, or mortgages. If your name is associated with the account which the debts are under, you will be liable.
Q: Will I Inherit My Parents’ Debt?
A: As long as you weren’t a joint account holder on any credit cards, mortgages, or other credits where your parents accrued debt, you are not responsible for any debt that remains after their passing. Their estate is responsible for any debts that remain.
Stange Law Firm for Kansas City Estate Planning
Whether you are planning your estate or looking for help after a loved one has passed, you should get help from an experienced attorney to ensure you aren’t paying for more than what you need. While it’s important to take care of debts, you may not necessarily need to pay the debts of a departed loved one.
If you are navigating the loss of a loved one and need help managing debt ownership, a Kansas City estate law attorney is standing by to help with the expertise you deserve. Contact us today for a consultation.