You can’t take it with you! This ageless truism proclaiming the impossibility of packing your assets into the afterlife should be modified to include the phrase; “but they can come and get it when you’re gone.” Even if you are no longer with us, your estate, or whatever is left after spending your children’s inheritance, must pay the piper. The debts you have run up live on and must be reconciled before the heirs get a nickel.
Credit card debt, especially in our present economy is a concern for many. If your Visa or Mastercard balance has been keeping pace with the National Debt, you have three options to get out from under; negotiate some sort of reasonable payment schedule, declare bankruptcy, or die. Try and negotiate a livable plan of payments. Bankruptcy can be a choice if you have little in the form of other assets to lose. Death is not a choice.
You probably won’t care after you die, but while you’re still kicking, perhaps you would like to know where your bucks will end up after the fire has gone out.
Your 401(k)s, which is Federally protected, pass on to the indicated beneficiaries and are not considered part of the estate. In most states IRAs, insurance, and brokerage accounts also pass to the beneficiaries and cannot be accessed by creditors. Everything else you leave behind is part of the estate and can be subject to probate and used by the executor to settle outstanding debts.
Does your credit card debt die with you? The answer depends primarily on two factors. These include whether you had a co-signor on the card application, and what state was home when the card application was made.
If there are insufficient funds in your estate to cover the credit card debt, the credit card company can go after any co-signor to the card application, whether it be a family member, friend, or business associate. They cannot collect from someone, say a son or daughter, who is simply authorized to use the card. Spouses are not liable if they were not co-signors, except in Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. These states have community property laws, which consider all joint assets acquired during marriage as common property. Some of these states include debts under these laws.
Many states allow the family home to pass to the spouse and have laws to protect it from creditors, especially if jointly owned. It is probably not protected if held only in the name of the deceased and is willed to another family member or friend.
If your assets are deemed insufficient to meet the debts, the estate is considered insolvent. There would be no liability for personal debts if the estate cannot pay. However, a vehicle, that has an outstanding balance owing, or a home with an unpaid mortgage can be repossessed or foreclosed.
Joint bank accounts are fair game for creditors.
Credit card companies cannot go after indicated heirs for debts of the deceased, although they will probably try. They cannot legally force someone else to clear the account.
It is the duty of the executor to inform all creditors of the debtor’s death by sending a copy of the death certificate. Credit card companies are prohibited from tacking interest charges or penalties on outstanding accounts, while the estate is being settled.
If you live in a state with community property laws, a lawyer to set up your estate is recommended.