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What Happens to Your Debt After Death?

Some may read the title of this article and figure, “It doesn’t matter what happens to my debt after I die because I’LL BE DEAD!” That’s not the best way to look at this matter, especially if there are loved ones who may unknowingly have to assume the burden of your unpaid bills once you have passed away.

Discussing anyone’s demise, especially your own, is not an easy conversation. However, looping key individuals in such as your spouse, children, significant other, attorney, financial advisor or another trusted individual can make the process of planning for the inevitable much more bearable. In fact, what ultimately happens to your debt is up to you, so let’s get started!

  1. WHO AND HOW MUCH – At least once a year, sit down with your financial advisor and review your debt to income ratio. Make notes on who you owe, how much is owed and how long it will take to pay off the debt. This is also a good time to discuss with your advisor if there are ways to pay off the debt sooner without penalty, or opportunities to increase the amount paid toward debt without busting your budget.
  2. WHO’S LIABLE – In most cases if you have credit card debt, your loved ones are not responsible for the balance should you pass away. The only exception is if their name(s) is listed on the account as a user. Be sure to explain this to anyone with whom you hold shared accounts, co-signatures, etc. And remember, you are responsible for the debt if the other co-user on the account(s) passes away before you.
  3. YOUR ESTATE – Did you know that once you pass away, an estate is automatically created in your name? This is where the importance of having a will or some documented statement of your final wishes in place is critical. The will identifies who the executor of your estate will be. Ideally, it should be someone who is responsible and will have your best interest foremost at all times.
  4. DUTIES OF THE EXECUTOR – The executor of your estate plays a very important role in the handling of your financial affairs after your demise. He/she must contact your creditors to notify them of your death while also determining what debt, if any, is passed on to whom. Working with an attorney and insurance companies to distribute any inheritances and/or policy payouts is also the role of the executor, so choose wisely or the state will choose for you!

I know the above sounds like quite a bit to take in. This is precisely why I urge my clients and everyone else to start now so that your final affairs can be taken care of over time versus making rushed, last minute decisions. Your loved ones will love you for it!

Connect with Delta Jones-Walker and Atled Financial on Facebook, Twitter: @Atled_Financial and LinkedIn! To schedule a complimentary consultation or a presentation to your group or organization, call 219-513-3710 or email [email protected] and mention this column. Topic ideas for this column are welcome!

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