Will My Debt Outlive Me: What Happens To Debt After Death

If you have ever wondered what would happen to your debts after passing, you are not alone. This is one of the most frequent questions we hear from clients. While each estate is unique, below is what you can typically expect from the most common types of debt.

Student Loans

Student loan collectors can make a claim against your estate if the estate has enough money to pay off the debt. However, not all student loan companies collect on debt after death. While federal loans are generally discharged upon death, any co-signers will be responsible for paying off your loans. For private student loans, the specific terms in your promissory note dictate whether the debt must be paid by your estate or beneficiaries.

Credit Cards

Much like student loan companies, credit card companies may make a claim against your estate. Individual credit card debt is not transferred to family members, however, except in community property states or if the card is jointly held.

Mortgages

Mortgage debt is most likely to be passed on to your family members after your death. Whether the property is jointly owned, inherited by a beneficiary through a transfer-on-death deed, or inherited through a trust, the surviving party will need to continue to make payments. The reason: mortgages are secured debt, unlike most credit cards and student loans.

Car Loans

The outstanding balance on your car loan may be paid with assets from the estate, the car may be repossessed, or the beneficiary who inherits the car may become responsible for the debt. Car loans, like mortgages, are secured debt.

Personal Loans

Whether a personal loan is passed on to your beneficiaries depends on the terms of the loan. If you are not sure, please ask us to review the loan documentation for you.

Tax Debt

Federal and state tax debt is a complex issue that varies based on the type of tax debt, whether the government has filed a tax lien, and whether the statute of limitations has passed. Tax debt is not uncommon; we will incorporate any tax debt into your estate planning.

Child Support & Alimony

Typically, a former spouse can file a claim against the estate for unpaid child support. In some cases, your divorce decree will require you to buy a life insurance policy. We will factor this into your estate plan.

Debt varies greatly from person to person. If you have any concerns, please contact us at (703) 448-7575 so that we may discuss how to ensure that your debt doesn’t come back to haunt your family after you’re gone.