Unfortunately, after a loved one dies, many financial burdens arise such as remaining debt. And the process of handling debts after a loved one has passed away requires a lot of knowledge and understanding.
Thankfully, our comprehensive guide on handling debts after death will leave you with all the knowledge you need to move forward after your loss.
What Is an Estate?
Legally an estate is defined by all the property and money that a person owns or controls after death. These estates normally need a lawyer to sort out especially if your loved one didn’t prepare a will.
That’s why it’s necessary to have the proper death preparation! Because with the right death preparation, a person can leave their estate and gift tax to inheritors debt free.
Who Inherits Your Debts after Death?
There are numerous parties that can inherit your debts after you die. Here is a shortlist of the common inheritors of debt:
- Individuals assigned with settling the estate’s debt who never complied with their states probate laws
- Spouses who live in a commune property state such as Texas, Arizona, and Co-signers on a loan
- Mutual owners or account holders
There are certain circumstances that can change who ends up handling an estate and any debts that were left unpaid! Down below are examples of the type of debt that can pass down!
Mortgage Debt
If you’re the only owner of your property and mortgage, then your estate is accountable for paying back any debts or loans. But the person who inherits the home could be responsible for the debts.
In these cases, the person has two options. For starters, they can sell the home to pay off the debts. The second option is to assume ownership and pay off the remaining payments.
There are instances of the trustee paying off the home loan before it is passed down. This action removes any burden of debt from the heir.
Car Loan
With a car loan, the estate will pay off the remaining loan. However, in the case that the bank doesn’t receive the necessary payments, the car will be repossessed.
But if the heirs want to keep the vehicle, they will have to take over the loan payments. Overall, this kind of debt inheritance is voluntary, and you should only worry if you plan on taking your loved ones’ car.
Student Loans
Private student loans are unsecured, this means lenders have no recourse if the person has no capital to repay them.
However, if before November 20, 2018, you cosigned a private student loan, then you might be responsible for the remaining payments. Luckily, some lenders will grant your immunity in the case of a loved one’s death. But be aware that in some states, the spouse becomes responsible, if the student loan debt was acquired during the marriage.Â
All federal student loans are discharged upon your death. If a student’s parent has a federal PLUS loan, it’s discharged upon the death of either the parent or student.
Home Equity Loans
Home equity loans are a little different than a regular house mortgage. Home equity refers to the acquired value you’ve gained from making payments on a mortgage.
Many times homeowners prefer to take out home equity rather than taking out a second mortgage. That’s because a home equity loan is easier to pay off and has less interest.
Nevertheless, in the case that someone inherits a home with an equity loan attached to it, they might need to pay off the loan immediately. When this happens the heirs are forced to sell their homes.
Ways to Help Your Family
This may all seem like a lot of negative information. However, there are ways to avoid these situations altogether. All it takes is the right preparation and support. We understand that preparing for your death may seem like an odd and scary concept.
However, those who don’t prepare for their death, leave their families with this burden. And instead of them grieving a loss, they’re stuck trying to figure out difficult financial issues.
Death Preparation
Death preparation is important because it can mean that your heirs inherit little to no death. A good way to prepare for death is to have your finances in order.
This means hiring a professional to properly allocate your estate to your next of kin. Usually a professional will allocate your estate by helping you prepare a will.
A will is a legal document that states where your estate should go following your death. Having life insurance can also help your family with any funeral or cremation expenses.
Overall, try to have all of these affairs in order. And if you haven’t found a reliable law office, then contact frameandframelaw.com as they can help with death preparation!
Handling Debts
You should try to pay off your debts before your death. We understand that this can be hard to do. However, it can save your family from financial problems after your passing.
If you can’t pay off your debts early, then try to make your scheduled payments on time. Many times, people miss a few payments and it backtracks them a lot.
By making all of your payments on time, your family won’t have to worry about missed payment charges on top of the initial balance. You should also communicate with your family members so that they are aware of what may come to them.
Start Preparing before It’s Too Late
Debts after death can be very hard to deal with. But don’t forget that there is a light at the end of the tunnel after a loved one’s death! Especially if the correct steps were taken prematurely.
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