There is an old saying which reminds us that we can’t take it with us. The saying is referring to financial wealth here on Earth, and it is very accurate. But when you do pass away, what happens to the debt you leave here? You cannot take your debt with you either, but there is a good chance that someone will have to deal with it when you have passed away.
<h3>How The Process Works After You Pass Away</h3>
Once you pass away, the legal system gets immediately involved through a court system called probate. The probate court will either review your will or, if there is no will, start assigning an executor and dividing up your assets.
If you do not have a will, then you have no say in who gets what from your estate. As estate is simply the collection of all of your assets that need to be distributed when you die. But even if you do have a will, you cannot stop your debts from eating into someone’s inheritance.
<h3>Paying The Bills</h3>
All of your debts must be satisfied before your beneficiaries start to see any distribution from your estate. If you have $100,000 in assets and $110,000 in debt, then your beneficiaries will not get anything. But what happens with that last $10,000?
If you have any credit card accounts that list another account holder, then that account holder will become responsible for that debt. If you have any mortgages or loans with a co-signer, then the co-signer will be the one who will have to pay off the remaining balance. It is important to note that co-holders of accounts and co-signers are legally obligated to pay for a loan or account you leave behind. This is why it is always a good idea to try and leave as little debt behind as possible.
<h3>The Solution</h3>
The way that most people pay off debt after they have passed on and avoid having the family home foreclosed on is with life insurance. Term life insurance is extremely inexpensive, and it can be purchased to protect each debt you have. For example, if you have a 30-year mortgage, then you can get a 30-year term life policy to make sure that the mortgage is paid off if you pass away before the term is up.
When you pass away and leave debt behind, your creditors will attempt to collect that debt from your estate through the courts. When you have life insurance in place to pay those debts, that will give your executor something to use to pay those debts and stop the creditors from pursuing legal action.
You cannot take your wealth with you when you pass away, but you also do not take your debts. Your family is safe from paying your debts so long as you have no account co-owners or co-signers. But that may not stop creditors from trying to collect from your estate through the probate courts. If you start planning now, you can have the devices in place to protect your family and pay your debts after you have passed on.
Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!