How are debts handled after you die?

Mar 22, 2021 | Estate Planning

Your estate plan provides instructions on distributing assets to heirs after you die. This includes property, money kept in bank accounts, proceeds from life insurance policies, as well as many other types of assets.

Additionally, your debt does not just disappear after death. According to AARP, debt repayment after death is a complex issue. This guide explains a few possible ways to handle the matter.

Debts paid through the estate

Before heirs receive their inheritances, the executor must ensure that debts are repaid. Creditors can claim assets from an estate when owed money. If an heir accepts an inheritance before the debt repayment, the creditor is also allowed to file suit.

In the event the estate is unable to cover the full amount of the money owed to a creditor, creditors may choose to forgive the remaining money owed. There are exceptions to this, however, including joint ownership situations.

When spouses must repay debts

In some situations, debt passes on to the spouse of the deceased. This is usually the case with medical debt. If two spouses jointly own a credit care and one dies, the debt automatically passes on to the co-owner.

Contacting creditors

If there are questions about the will or the probate process takes longer than expected, some people reach out to creditors to inform them of the issue. While this does not always result in debt forgiveness, it can buy some time to sort things out.

When executing a will, it is better to take time and navigate different processes thoughtfully. That way family can rest easy knowing debts are fully paid.