BETTER PLACE FORESTS IS NOT A LAW FIRM AND DOES NOT PROVIDE LEGAL ADVICE. The information provided in this post does not, and is not intended to, constitute legal or financial advice; instead, all information is for general informational purposes only. Contact an attorney to obtain advice with respect to any particular legal matter.
Many of us end up with some kind of debt during our lives, such as a mortgage, credit cards, or student loans. As you get older, you may wonder what happens to your debt when you die and whether your spouse or loved ones will inherit your debt. To help you navigate this complex topic, we’ve gathered answers to the most common questions about debt and death.
What happens to your debt when you die?
When you die, your assets and debts get transferred into your estate. An estate is a legal entity either set up by you ahead of time via a trust or established in court via the probate process in your state, either by a will or by state law when there is no will, which is called dying intestate. Your estate will be used to pay off your debts. The trustee, executor, or administrator of your estate collects any money, property, investments, or valuable items you own at the time of your death. Your family and loved ones might get their inheritance before debts are paid, depending on the laws in your state and whether you leave a will. If your family members are paid first, any remaining money and possessions are then used to pay off your debt.
Is debt transferable after death?
Typically, no one else is obligated to pay off your debt when you die; however, there are a few exceptions. Someone else is liable to pay back the debt in the following circumstances:
They’re a joint account owner
If you have a joint account that’s overdrawn, the other account owner is liable to pay off the debt when you die. Likewise, if someone is a joint account holder for a credit card, they’ll have to pay the bill. However, this is different from an authorized user on a credit card, who would not be liable to pay.
They cosigned a loan for you
Anyone who has cosigned for you so you can borrow money is responsible for all future payments. This means they’re responsible for paying back the loan if you die before it’s paid off. Check any joint loan documents closely. There may be an acceleration on the debt if you are the primary borrower.
You live in a state where a spouse takes on debt after death
Some states are community property states, meaning that all assets — and debts — are shared between spouses. These states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
You live in a state where parents or spouses are liable for certain costs
Some states have something called a “doctrine of necessaries,” which means you could be liable to pay your late spouse or child’s medical bills. You can find a list of the doctrine of necessaries for different states here.
What happens if you die with debt and no estate?
In many cases, if you don’t have an estate then some of your debt will be written off because there is no money left to pay the creditors. This usually applies to unsecured debts like credit cards and student loans, where the loan hasn’t been taken out against a physical object. On the other hand, for secured debts like car loans and mortgages, the car or house can be repossessed if you don’t have an estate and no one else takes on the payments after your death.
Who deals with debts after death?
When someone dies, the trustee of the trust or the executor of the will handles their finances. A trustee is someone named in the trust who can act without court appointment. An executor is someone who’s named in the will to be in charge of the estate after death who in most states needs to act through the court system. If an executor isn’t named in a will or there is no will before death, it’ll be done by an administrator or personal representative appointed by the courts. The executor is responsible for using the person’s estate to pay off any debts after death. However, they’re not personally liable for the debt. This means they’re not expected to pay off the debts with their own money, just the money in the estate.
What happens to different types of debt after death
Different types of debt are subject to different rules. While some may be written off if a person dies with no estate, others may be passed on to loved ones.
When someone dies, they might have medical bills to pay. Usually, this is the first kind of debt to be paid from someone’s estate. If the deceased doesn’t have an estate, then what happens varies state to state. Generally, family members are not responsible to pay the debt except for spouses in community property states or the doctrine of necessaries in other states, both discussed above. If you’re unsure about the rules in your state, it’s worth talking to an attorney to understand what would happen in your situation.
If you leave your house to someone in your will but your estate doesn’t cover the mortgage, then that person becomes responsible for the mortgage payments. If there’s a co-owner who didn’t cosign the mortgage, they’ll also become responsible for the payments. If they cannot afford the payments, they may have to sell the house to pay off the mortgage.
Credit card debt
Any credit card debt will be paid off from your estate after death. If you don’t have enough to pay it off, then the debt won’t be repaid, and it won’t be passed on to anyone else. However, if there is a joint account holder for the credit card, they’ll be responsible for the debt. If someone is just authorized to use the credit card but isn’t a joint account holder, they won’t be liable.
Since a car loan is a secured debt — secured by the car itself — the car can be repossessed when you die. If a family member wants to keep the car, they can usually choose to take on the payments after you die.
In some cases, particularly in the case of federal student loans, the loan may be forgiven. Private student loans are treated differently. Since a student loan is an unsecured loan, it will be paid off using a person’s estate, or if they don’t have one, it’ll be written off.
Will I inherit my parents’ debt?
No, more than likely, you will not inherit your parents’ debt. If they have enough money in their estate to cover their debts, it will be paid from there. This includes medical debt, credit cards, or student loans. If they still owe for their car or home, you can sell them to pay off the debt. Or if you want to keep these assets, you can continue making payments toward the loan.
If you cosigned a loan for them, you will be responsible for that debt. In addition, if you were a joint account owner with them and any debt is owed, you will need to repay it.
Am I responsible for my spouse’s debt after death?
This one is a little trickier. Because you might have cosigned on a car or mortgage with your spouse, you will still be responsible for the payments, or you can sell those items to pay off the loan. Likewise you will still be responsible for any credit card debt you incurred on a joint account. If you live in a state that is a community property state (see list above), your debts and assets are shared between you and your spouse. In some states, you could be responsible for your spouse’s medical bills under the doctrine of necessities.
Getting your affairs in order
It’s important to make provisions for your finances and affairs so that you are prepared if you get sick or die. While it can feel overwhelming, actions like preparing a trust, writing a will and appointing a durable power of attorney can help put your mind at ease. Feel free to take a look at our end-of-life planning guide for more advice and resources on getting your affairs in order.
Read more: 7 tips for transitioning to retirement