All In The Family: What Happens To Your Debts When You Die
No matter how young and fit you are, death can strike at any time. You’ll probably have a long and productive life, but it’s never a bad idea to plan for the unexpected. This is doubly true if you have significant outstanding debts that you’re worried about passing along to your grieving family. Although the laws governing the settlement and transference of debts after death can be confusing and may vary between jurisdictions, there are a few general points to keep in mind.
The Legalities of Death
As you might expect, there’s a well-settled legal framework in place to deal with the inevitable settlement of deceased folks’ affairs. In legal parlance, the sum total of your assets is known as your “estate.” Upon your death, your estate enters a condition known as “probate” and is examined by a judge who uses your liquid monies to compensate your creditors in order of seniority and, if necessary, authorizes the sale of assets to satisfy any remaining debts. Contrary to popular belief, drawing up a will before you pass does not protect your assets from the debt collector. In most cases, dying with $50,000 in outstanding debts and $50,000 in assets produces a wash: Your estate will effectively have a zero balance once the probate process has concluded.
Passing Down Debt
Notwithstanding the probate process of debt disposal, your family can still inherit a tremendous amount of debt if you die unexpectedly. When you co-sign a loan with your spouse or other family member, responsibility for that obligation falls to them once you’re gone. Likewise, responsibility for joint credit cards and any fees and penalties incurred on joint bank accounts transfers as well. Since many people die with tremendous amounts of credit card and co-signed loan debt, this is not a trivial matter.
Some states take the transference of debt one step further, passing along all of your debts to your surviving spouse regardless of whether you co-signed for them. California and Texas, the country’s most populous states, are among the nine that have some form of “community property” laws on their books.
Leaving A Positive Legacy
Even if your children won’t inherit the debts with which your surviving spouse will have to deal, you may wish to leave them something more than a fond memory. To protect a portion of your estate, take out a generous life insurance policy that’s sufficient to cover funeral costs and other “final” expenses as well as repay your adult children, spouse, or other relatives for any debts that they may have incurred in caring for you during your final days. Medical bills can quickly become ruinous, after all.
You will also want to take out a payment protection insurance policy to protect your spouse and remaining family from inheriting your credit card debts and other loans. Payment protection insurance is the easiest, most cost-effective way to lighten the burden of your unexpected death and keep your family moving forward financially.
Death is inevitable, but it can strike without warning and leave surviving family members in a heap of trouble. If you’re worried about what would happen if you died tomorrow with a mountain of debt, consider taking out payment protection insurance to protect your loved ones from your creditors.
Bobby Guzman blogs about the benefits of protection payment insurance. You can compare PPI services and make claims at ppiclaims.uk.com.