Page 22 - The Jewish Voice - February '25

Page 22, The Jewish Voice

Lifestyles from page 21 and Federal Perkins Loans, are usually discharged when the circumstances with a lawyer. Collectors who go too far
borrower dies, as long as the loan servicer receives proof or provide misleading information can face potential
One Nation, Under Debt of death. 8 consequences.
Debt is as old as civilization itself. Lending at interest Private student loans are a different story. Some lenders • When a beneficiary inherits a home, they also take
can be traced back to ancient Mesopotamia and the use of of private (i.e., nonfederal) student loans offer a death possession of the home subject to any outstanding mortgage
promissory notes to facilitate trade. The United States has discharge, although it is not the norm. They may come and are ultimately responsible for that debt. Anyone
carried debt since its inception, borrowing money from after the loan’s cosigner (if there is one) or the estate for inheriting a home or other significant asset, such as a
domestic investors and the French government to fund the repayment of the outstanding balance on the loan. vehicle, with an outstanding loan balance must know their
Revolutionary War. obligations to the lender. They may have to sell the house
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Total consumer debt eclipsed $17 trillion in 2023, up Secured versus Unsecured Debt to pay off the mortgage or apply to transfer the mortgage to
from $15 trillion in 2021, according to credit reporting Determining how and when to pay a debt after the debtor their name. In addition, individuals have the right to refuse
agency Experian. The largest and most common debts has passed away and who or what may owe the debt can a gift from an estate if they do not want or cannot afford
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include: depend on whether the debt is secured or unsecured. it. In some cases, federal law will allow a decedent’s heirs
• mortgages ($11.5 trillion in 2023) • Secured debt is backed by collateral (a tangible asset to assume the mortgage on a property without triggering a
• auto loans ($1.51 trillion) the lender can repossess or sell if the borrower does not due-on-sale clause, ensuring that the loan remains in place
• student loans ($1.47 trillion) pay back the debt). Common examples of secured debt after the owner’s death.
• credit cards ($1.07 trillion) are mortgages (secured by the real property) and car loans • Every state has different laws and procedures
• personal loans ($571 billion) 4 (secured by the vehicle). Secured debts are typically paid surrounding debt repayment. Things can quickly get
The total average individual debt balance in 2023 was off before unsecured debts when a probate estate is settled complicated, so it is best to work with a local estate or trust
$104,215, up from $101,915 in 2022 and $96,371 in 2021. 5 during the probate process. If estate assets are insufficient administration lawyer if there are any concerns about how
According to debt.org, 73 percent of Americans die to cover the secured debt, the lender can seize the collateral unresolved debts could affect the surviving family.
owing money. The average amount of debt they die with to recoup their losses. Estate planning is about the legacy you leave behind. If
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is nearly $62,000. 7 In rare cases and under select jurisdictions, legal that legacy includes debt, an estate planning attorney can
protections may be available for surviving spouses who offer advice for getting it under control during your lifetime
What Happens to Your Debt when You Die wish to remain in a primary residence subject to a creditor’s or help your family deal with the consequences of your debts
You are probably familiar with the expression “buried claim. These protections may delay or prevent foreclosure after death. Call us if you need assistance planning for your
in debt.” It might hit close to home if you are like most if the spouse cannot pay off the mortgage in full. debt or winding up a loved one’s affairs.
Americans struggling to pay off existing loan balances. • Unsecured debt is not backed by collateral (that is,
However, do you know what happens to your debt when there is no specific asset backing the debt). Unsecured debt 1 Myles Ma, SPFC, 46% of Americans expect to pass on
you die? includes credit card debt and personal loans. debt to their loved ones when they die, Policygenius (Jan. 9,
The answer depends on factors that include the type of Unsecured creditors have lower priority than secured 2024), https://www.policygenius.com/life-insurance/2024-
debt and the state where you live. In most cases and most creditors in probate. If the probate estate has enough funds, financial-planning-survey-passing-on-debt-after-death.
states, your loved ones are not stuck with your unpaid bills unsecured debts are paid off before any inheritance is 2 FiscalData, https://fiscaldata.treasury.gov/americas-
because creditors are paid only from the assets (e.g., home, distributed. However, if the estate lacks sufficient funds to finance-guide/national-debt.
car, bank accounts, investment accounts) that are (i) part of satisfy all its debts, unsecured creditors are typically last 3 Chris Horymski, Experian Study: Average U.S. Consumer
your probate estate and go through a probate court or (ii) in line for repayment and may not receive the full amount Debt and Statistics, Experian (Feb. 14, 2024), https://www.
in your revocable living trust. they are owed. experian.com/blogs/ask-experian/research/consumer-debt-
If you do not leave behind enough assets in your probate Funeral expenses also take priority over some creditor study/#s3.
estate and living trust to fully cover the debts owed, creditors claims. Any state and federal taxes that the decedent owes, 4 Id.
may have to settle for what is available. There are some as well as probate estate administration expenses incurred 5 Id.
exceptions to the idea that surviving family members and during probate (e.g., legal and accounting fees), may also 6 Bill Fay, What Happens When People Die with Debt:
other heirs are not on the hook for the debt, including: supersede creditors. Who Pays? (May 16, 2023), https://www.debt.org/family/
• a person who cosigns on a loan Knowing which debts have priority over others in people-are-dying-in-debt.
• the spouse of a deceased person who lives in a state probate is the responsibility of the estate’s executor/personal 7 Id.
with community property laws (Arizona, California, Idaho, representative. If the individual assigned this role in an 8 FederalStudentAid, https://studentaid.gov/manage-loans/
Louisiana, Nevada, New Mexico, Texas, Washington, and estate plan does not follow state probate laws, they could forgiveness-cancellation/death.
Wisconsin) be personally responsible for debts that should have been
• the spouse of a deceased person who lives in a state paid but were not because the executor did not pay creditors If you have questions about your estate plan and what
that requires a surviving spouse to pay certain healthcare in the correct order. documents you should have in place to plan your estate,
expenses and other kinds of debt schedule a free consultation today by calling our office at
The rules governing when a surviving spouse is How to Plan for Debt and Leave More Money for Your 561-694-7827, Anné Desormier-Cartwright, Esq., Elder
responsible for paying unpaid medical bills are complex and Loved Ones and Estate Planning Attorneys PA, 480 Maplewood Drive,
vary by state. It is important to work with an experienced “You can’t take it with you” applies to what you owe Suite 3, Jupiter, FL 33458.
estate or trust administration attorney to ensure that your every bit as much as what you own. The content of this article is general and should not be
affairs are wound up correctly. Your outstanding debt could create potential relied upon without review of your specific circumstances by
Surviving spouses and adult children are frequently complications for loved ones. Your family may not competent legal counsel. Reliance on the information herein
contacted by debt collectors attempting to collect on bills personally get stuck with your unpaid bills; however, if you is at your own risk, as it expresses no opinion by the firm
for the medical care of their deceased loved one, according do not pay off your debts before you pass away, they may be on your specific circumstances or legal needs. An attorney
to the Consumer Financial Protection Bureau. However, forced to deal with debt collectors harassing or contacting client relationship is not created through the information
unless the survivor also agrees to the medical debt or is them. Worse still, there may not be any money or property provided herein.
responsible under state law, they are generally not liable left to distribute to your loved ones in probate court or To comply with the U.S. Treasury regulations, we must
for the debt. through the trust after everything has been liquidated to pay inform you that (i) any U.S. federal tax advice contained
creditors. Here are some protections that your loved ones in this newsletter was not intended or written to be used,
Not All Debts Go Away at Death are afforded: and cannot be used, by any person for the purpose of
Debts not inherited by a specific individual under the • State and federal law limits whom debt collectors avoiding U.S. federal tax penalties that may be imposed
exceptions described above do not just disappear, except are authorized to contact — and how they can contact on such person and (ii) each taxpayer should seek advice
for debts that are dischargeable by death. them — to discuss outstanding debts. Spouses and other from their tax advisor based on the taxpayer’s particular
For example, federal student loans, including Direct survivors should not automatically assume they have to circumstances.
Subsidized Loans, Direct Unsubsidized Loans, Direct pay and should delay any conversation regarding payments
Consolidation Loans, Federal Family Education Loans, of outstanding debts until they have discussed the specific
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