New York Estate Planning & Elder Law Blog
Debt is an all-too-common part of our everyday life. In fact, Marketwatch.com lists American personal debt – including homes, student loans, and auto loans – at approximately two billion dollars. This figure does not include credit card debt. However, as daunting as debt may seem, making sure to consider your debt when determining how best to engage in comprehensive estate planning is an important part of your debt management strategy.
Understanding Your Debt
One of the first things to consider when approaching debt and estate planning is whether your debt will become someone else’s responsibility when you die. An article from NerdWallet.com helps shed some light on what happens to various types of debt after the individual responsible for that debt passes away. Some common examples of debt and what may happen to that debt include:
- Mortgages and Car Loans– If you are the only owner, remaining mortgage balances or car payments are typically paid out of your estate funds. However, if another individual is listed as a co-owner, then they are likely going to inherit whatever mortgage or auto loan debt is left. Typically, an individual that inherits the home or vehicle can simply continue to make required mortgage or auto loan payments without any adverse action.
- Student Loans – Individuals that have private student loan debt will need the estate to try and pay off any unpaid debt remaining. Student loan debt is typically unsecured, so if there is not enough money in the estate to pay off the remaining balance then the outstanding amount due is usually cleared. However, any co-signer on student loan debt would be liable for any remaining balance. Keep in mind that community property states often treat any debt incurred during marriage, including student debt for one individual in the marriage, as joint debt and the surviving spouse would likely be responsible for any outstanding balance.
- Credit Cards – Credit cards are typically unsecured debt, too. That means that creditors may be able to try and collect unresolved debt from your estate, but if there are no more assets to pay off remaining balances, then credit card companies have little recourse and must usually take a loss by clearing that debt. This is not the case in situations where you have a joint account holder, as that person would be liable for any remaining balances. Usually, authorized users are not considered joint account holders but it is important to determine the dynamics of your credit card debt and responsibilities.
There is a lot to think about when it comes to your debt, and often the best course of action depends on the laws in effect in your state.
Planning for Your Debt
Left unchecked or unplanned for, debt can eat up a significant portion of your estate. That means your risk having significantly less assets to leave to your heirs after your death. An experienced estate planning attorney can work with you to help you understand different estate planning tools that can help you manage your debt now and help make sure that debt has a smaller impact on your estate if you die with it.
Make sure to include debt as part of your discussion when you are looking at a comprehensive estate planning strategy that works for you. While things like life insurance and federal legislation governing debt collection can help your estate and your heirs, you should not rely solely on those possibilities. You may want to make use of estate planning vehicles like a trust in order to make sure that debt does not control your entire estate, but each person’s estate plan is unique to that person’s individual needs. An experienced estate planning attorney can work with you to find an estate plan that works best for you.