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Who’s responsible for your debt when you die?

On Behalf of | Sep 16, 2021 | Estate Planning |

Just about everyone passes away with some debt – even if it’s a couple of credit card balances or some medical bills that haven’t been paid yet. However, at the end of 2016, reported that Americans had an average of over $61,000 in debt. 

That’s a lot of debt to leave behind if you die before paying it off. Is it deducted from the amount that your estate is worth? Do your surviving family members have to pay it? It depends on the specific debt and who all is responsible for it.

When do family members have to pay off debts?

When someone dies, responsibility for most of their debt typically transfers to their estate. If there are enough assets in the estate to cover it, the executor will be required to pay the creditors before dispersing any inheritances to the estate’s heirs.

If there’s more debt than there are assets in the estate to cover, creditors typically can’t come after family members for it – unless they’re a co-owner or co-signer on a loan or credit card. Certain debts, like federal student loans, are canceled when a borrower dies.

How to prevent debt from eating away at your estate

As part of your estate planning, it’s wise to take a look at your debt and work to pay it down or off – especially if there are others on the accounts that could have to assume responsibility for it. Obtaining a life insurance policy that will cover your debt and still leave money behind for your loved ones is wise, too. With careful consideration and experienced legal guidance, you can find the best option for your family.