What Families Need to Know About Debt After Death

debtDebt and death. These are two of the most intense and avoided topics of our time. A lot of families do not discuss these issues openly or at all with one another. I hope to shift that paradigm even just a tiny bit during my work here on this earth.

During the estate planning process, many families have questions about how debt plays into what their loved ones will have to deal with after they are gone. And many managing the affairs of a deceased loved one share the same concerns. Will the debts transfer to family? While debt is part of the overall picture, it is likely not to be as bad as many anticipate.

The poverty rate among seniors is rising, giving rise to the question of whether or not it is possible to inherit debt.

In general, when a loved one passes, his or her debts fall to the estate to be paid.  However, in situations where debt is shared — for example, jointly owned credit cards or shared student loans — the debt can pass to the account co-owner, even if he or she was unaware of the debt.

This is why it is important to consider debt planning as part of your overall estate planning process.  Here are some tips on dealing with debt:

Get informed.  By law, everyone is entitled to one free credit report every year from the three major credit reporting agencies: Equifax, Experian and TransUnion.  Spouses should obtain and share their credit reports with each other so they are informed about any debt issues that could impact their estates.  If debt will potentially impact adult children, be honest with them about your financial situation as well.

Get advice.  Seek the counsel of a financial professional on your debt issues and how to resolve them.  Deal with personal debt before it can become a potential issue for your family.

Get organized.  Ideally, all your estate and financial planning documents should be in one place where your family is informed about where to find them.  Among these documents should be an updated list of current assets and debts, including financial institution information, account numbers and passwords (or a pointer to where this can be found online). In our office, we call these documents a Family Wealth Inventory.

Get educated.  Heirs should educate themselves about what types of debt will need to be repaid and what may be cancelled or forgiven.  Generally, any unsecured debt held in the deceased person’s name alone — credit cards, student loans, etc. — will be discharged.  While debt collectors have the right to attempt to collect on the debt — and may contact survivors to try to “guilt” them into paying — being educated about liability for debts after death will arm you with the knowledge you need to respond appropriately.

The best way to learn about protecting yourself and your family is to talk with us about a Family Life & Legacy Planning Session, where we can identify the best strategies for you to provide for and protect the financial security of your loved ones.


This article is a service of Amie Mendoza, Personal Family Lawyer®. One of the objectives of our law practice is to keep families out of court and out of conflict. We can help you protect those you love using a Family Life & Legacy Planning Session. Call our office today at 480-418-7381 to schedule a time for us to sit down and identify the best strategies for you and your family.