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What happens to your debt when you die?

On Behalf of | Oct 26, 2023 | Estate Planning

Seniors often worry that they’re going to leave behind a lot of debts for their heirs – with good reason. It’s estimated that 73% of people in this country will die owing somebody money. If your final expenses include an extended hospital stay, that could easily run into tens of thousands of dollars, at least.

If you’re concerned about the bills you’re leaving behind, you may be able to breathe a sigh of relief when you find out how things work. Let’s review this briefly.

It all depends on how much your estate is worth

If your estate has money or property, part of your personal representative’s duties is to collect your final bills and pay them using those assets – if that’s possible. If your estate is left without any significant funds, then the bills may simply go unpaid.

Typically, nobody is responsible for paying the debts of someone who has died unless they are a joint account holder on a credit card or the co-signer on a mortgage or other loan. That does not mean that creditors won’t try to get your loved ones to pay. However, they may have no legal means of forcing them to do so.

It’s important to remember that good estate planning often involves bypassing probate as much as possible. The use of transfer-on-death deeds, payable-on-death designations on your bank accounts and direct beneficiary designations on insurance policies can minimize the funds available to pay any debts you leave behind when you die and preserve a legacy for those you love.