Several months ago we discovered this insightful article on the website US News. It answered a question we have heard frequently in our client meetings, on our call-in radio programs and at our seminars: “If I die with debts, will my heirs have to pay them off?” Because this question (and the worry behind it) is so common, we felt it was timely to re-address this issue.
So here’s the bottom line: If you die leaving debt behind, most of the time – if you have any assets at all – the answer is yes, your heirs will be saddled with that debt. The article explains several possible scenarios where those debts you incur in life will burden those who inherit your estate.
Debt is an especially tough problem for seniors, a group whose debt burden is definitely increasing. “With seniors’ debt burden rising, many are likely to die with debts still unpaid,” says US News. “While not all that debt will pass to their heirs,” the article goes on to say, “much of it will come out of any inheritance they expect to leave behind.”
How bad is the senior debt problem? The article states that in 1989 about 44 percent of senior households in the U.S. were carrying some debt. In 2013 that percentage had risen to just over 61 percent. But the figure that caught our attention was the amount of that debt: for households headed by adults age 60 or older, the average debt burden had skyrocketed from about $9,000 in 1989 to nearly $41,000 in 2013. One particular surprise that we’ve recently written about on our AgingOptions Blog (click here for the story) is that many seniors are loaded down with student debt incurred by their kids and grandkids, because of education loans for which the parent or grandparent co-signed. For seniors already strapped for money after the recent recession, debt can be a crushing burden now and a headache in the future when your children have to deal with it.
US News states that, if you have any assets at all, your creditors will likely get “first dibs” during the probate process. “That means,” the article reports, “that your children or other heirs effectively will pay your debts because they will be subtracted before any inheritance is transferred.” This will force your kids to pay off your debts with the cash you had hoped to pass on to them. It may even mean selling off assets such as a home to pay off your creditors after you’re gone. Depending on the state you live in, some spouses become liable for the debts incurred by their spouse (Washington is one of those states, referred to as a “community property” state). The debt you leave behind may place a severe burden on your surviving spouse. In other words, according to one financial advisor quoted in the US News article, “Debt is the last thing you want to have when you die.”
The article lists six things you need to do if someone you love dies with debt. (Again, click here to link to the US News piece and read all six.) Some of these steps are obvious, such as the immediate notification of creditors, especially credit card companies: you want to make sure no one can open a fraudulent account in your loved one’s name, and you also want to put an immediate halt to any additional fees and surcharges. A few other important things on the checklist involve filing tax returns and filing for those assets that do not go through probate, such as life insurance payouts and retirement accounts.
But the first thing on the US News “to do” list is to consult with an attorney. Here at AgingOptions, where retirement planning and elder law are our specialties, we would welcome the chance to sit down with you and go over the situation in which you find yourself following the death of your loved one. In fact, a call to our office should be one of the first ones you make, so that we can begin advising you of all the necessary steps you’ll need to take to satisfy creditors and protect your own family’s interests.
An even better idea for dealing intelligently with debt and finances is for retirees to start now to put a LifePlan in place – a comprehensive retirement plan that covers all aspects of your retirement and your estate. We can advise you on how to protect your assets and how to avoid burdening your loved ones both while you live and after you’re gone. All your legal and financial plans become part of your LifePlan, as do your housing preferences, family instructions and medical coverage needs. It truly is a “Life Plan.”
The very best way to start the LifePlanning process is by attending one of our free LifePlanning Seminars. You’ll come away with valuable knowledge that will help you face your retirement years with a new sense of confidence, knowing you’re prepared. Don’t leave your heirs with a burden of debt – or even worse, with the burden of caring for you and making decisions against your wishes. You’ll find a complete list of upcoming dates and locations right here on our website, along with simple online registration. We encourage you to register today because many of our LifePlanning Seminars are filled to capacity. And as always, if we can assist you by phone, please call our office during the week. We’ll look forward to seeing you soon.
(originally reported at http://money.usnews.com)