Avoid Transferring Debt After Death

The purpose of a will is to ensure that a person's loved ones are taken care of in the event of their passing. But if a person has more debts than assets, can death transfer debts and cause financial issues for loved ones?

Will Debt Be Transferred?

Many financial debts will not be passed off to a person's loved ones, but there are some that may need to be paid off. Credit cards, certain types of bills, and personal loans are examples of debts that will not be transferred. The estate of the deceased will go through probate and the debt will be paid from there. If there is not enough money in the estate to pay back the loans, they will be written off by creditors.

However, there are some instances where debt will transfer to a person's loved ones:

  • Any loved one that co-signed a loan will be responsible for the debt in the event of a death
  • Residing in a community property state will transfer debts to the spouse
  • Joint account holders will be responsible for paying back credit cards and loans

Significant secured debts owed on a mortgage or car loan can cause adverse financial effects for family members if the assets are left to a particular person. A home can be foreclosed upon if those that inherited the house do not make mortgage payments or a car can be repossessed if the loan is not paid off.

Take Action in the Event of Debt

If you find yourself in this type of financial situation, it is in your best interests to prepare accordingly. Paying off existing debt is the best way to avoid transferring debt to loved ones after passing. There may be other actions available that could minimize your debts' effects on the family, such as closing joint accounts and re-evaluating co-signed loans.

It may be helpful to discuss with the family the intent behind leaving certain items. For example, if the family home is intended to stay in the family, it may be worthwhile to leave it to the person best financially suited to pay the mortgage. If the home could be sold for profit, it may change the person best suited to inherit the home.

If leaving behind debt cannot be avoided, a probate lawyer may be most effective to help navigate specific details of inheritance. By ensuring that loved ones are aware of potential debts they may face, preparation can begin as soon as possible.

If help is needed finding a local probate lawyer, our directory can be used to connect with the right probate attorney for your case.

Categories: Probate