Page 5 - Jupiter West - February '25

Jupiter West, Page 5
Elder Estate Planning

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

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