When it comes to life and experiences, it’s more pleasant to focus on living and not on what happens after you’ve passed on. But for people who have a partner and/or children and who are in debt, there’s the sticky issue of what happens to your debts once you’re gone.
Do they just disappear, get written off, or forgotten about? Or, are there some situations where they continue and get passed down to your dependents? Let’s find out.
Probate Is Handled for Your Estate
Your estate – essentially what you own or owe – is managed by a probate executor who has been appointed to deal with these matters.
While debts after death aren’t always at the forefront of the mind after a loved one has passed on, the executor is charged with the important responsibility of handling your affairs regardless of the emotion involved for your loved ones. That’s just an unfortunate reality.
Will Debts Be Inherited?
The key question here is whether this is happening in a community property state or not. California is one such state, but there are several others too.
When it’s not a community property state, then, generally speaking, family members do not inherit your debts when they’re in your sole name. However, when these are joint accounts, then often these are inherited by the other party on the account.
The situation is complicated and needs thorough investigation. There are also various caveats and exceptions too. You’ll need some good advice from a lawyer to confirm the situation fully.
Is It Possible for a Creditor to Push for Repayment?
Even in states where debts don’t usually get inherited by the descendants, do creditors sometimes come after them to apply pressure to repay their loved one’s debts? You bet!
While they will likely know that the debts are unenforceable at that point, it won’t stop them from trying to convince your loved ones otherwise. It’s worth it to them because many people are unaware of their rights towards their inheritance.
What About Student Loans?
While older people don’t usually still have outstanding student loans, younger people who unfortunately pass away often do if they’ve already been to college.
Are student loans forgiven?
If they’re federal student loans, then yes, they’re forgiven, and they don’t get passed to the beneficiaries of the estate.
However, the situation with private student loans is quite different. While there may be a policy to forgive and write off loans on accounts where the person is no longer with us, many student loan providers do not write off the debt. Also, they’re under no obligation to forgive the private student loan either. So, they may ask the executor to be clear the student debt using some or all of the proceeds from the estate.
Use of Accounts
While your family may have bills to cover, they should not access accounts in your name after your passing. It may seem obvious, but many do make this mistake.
The exception to this is for joint accounts where debts are assumed by the joint account holder.
So, the answer is a complicated one. It’s not 100% positive or negative regarding the inheritance of outstanding debts. This is why talking with a probate attorney is a good idea if you need clarity on the matter.
