Accumulating debt is part of the American way of life. Between mortgages, auto loans, student loans, credit cards, and a variety of other forms of debt, the average household debt in the U.S. is approximately $145,000. Narrowing the focus to individuals age 75 and older, recent research still shows an average balance of $34,500 per person.
This means that for the majority of people, debt will have to be addressed when settling their estate after they die. Generally speaking, the estate is responsible for paying the balance on all debts, a process that, in Florida, is managed by the personal representative named in the deceased’s estate planning documents. It is his or her responsibility to pay any creditors from the assets in the estate.
If the deceased is survived by a spouse, there’s a good chance that most debts and assets were co-owned by the married couple. So, for example, if they owned a home and were still paying on the mortgage, the surviving spouse can simply continue making payments. This is also true for auto loans, credit cards, and other types of consumer debt.
For a home mortgage, any time a home transfers ownership, a due-on-sale clause requires that the full loan balance be repaid immediately. An exception is made, however, in the case of an inherited home. Laws have been established that protect heirs, allowing them to continue making payments and have the title transferred without triggering the due-on-sale clause.
Overall, however, it can generally be assumed that no one is legally obligated to pay the debts of the deceased if, for example, there are not enough assets to liquidate to cover the balances. That said, there are a few exceptions, such as if there was a co-signer on a loan, in which case the co-signer is responsible for the debt. Similarly, if an unpaid debt has a joint account holder who survives the deceased, the joint account holder is then responsible for the debt. It’s important to note, however, that this does not apply to an authorized user of a credit card who is not a joint owner.
This doesn’t mean creditors, especially collections agencies, won’t contact you and attempt to collect a debt. However, unless you were a co-owner, a co-signor, or the debt is from a joint account, you’re under no obligation to pay. If you as a surviving heir are being pursued by a creditor to pay an outstanding debt and you question whether you should pay it or not, seek out the advice of a qualified probate attorney.
Also, if the deceased had a life insurance policy and you are the beneficiary, those funds are 100 percent protected from creditors. That money is intended for the beneficiary or beneficiaries to make sure that financial worries are not added to the grief people experience when a loved one passes.
If you have questions about how debt affects your estate planning, or would simply like to talk to a qualified estate planning attorney about how to protect your family in general, contact Nexus Legal Solutions at 407-900-7722 for a consultation.
Photo: "Mortgage" by InvestmentZen is licensed under CC BY 2.0.