It is more important than ever to get all of your legal affairs in order before you die. You should draft a living will and pay off all of your debts if you can. Almost three out of every four people die while heavily in debt. The average posthumous debt amount is well over $60,000. Many people believe that their debts disappear or are forgiven after death, but this is not always the case. A lot of debt can survive your death and must be repaid, even after death.
Who ultimately become responsible for paying back the debts of the deceased depends on the kind of debt and legal requirements of residency. Secured debts, personal loans, cosigned loans and tax payment obligations always survive death. If you assume a lot of unpaid debt in life, you could be setting up your loved ones and/or the inheritors of your estate to deal with a lot of legally mandated debt hassles.
So, who is responsible for paying back the posthumous debts of the deceased? It pays to consult a lawyer because in a lot of circumstances, it really depends.
Loan and Credit Cosigners
Anyone who cosigned for loans or credit on the behalf of the deceased are fully on the hook for paying back all such debts. When you cosign for a loan, you are legally attesting to the responsibility to pay back the debt should the primary signer be unable to pay the debt. Death does not absolve a cosigner from paying back the debt assumed by the primary signer of the debt.
Whoever inherits property from the deceased is responsible for any secured debts that may be applicable to such properties. Surviving relatives, beneficiaries and/or estate caretakers fully inherit the responsibility to pay back such debts. Any house, property and/or assets that were collateralized for the purpose of a mortgage or a loan can be posthumously seized by concerned banks or financial institutions.
Community Property States
Spouses can inherit the bills for a multitude of debt, including mortgages and loans, after the death of a spouse. Barring those circumstances, however, a spouse is off the hook unless they cosigned for or jointly owned debt with a spouse in life. Credit card debt, unless specifically co-owned and cosigned, cannot be collected. Life insurance or pension fund policy payments ascribed to beneficiaries, like a spouse, cannot be touched by creditors.
However, this is not always the case for surviving spouses in community property states. There are currently ten, “community property,” states which include Alaska, Arizona, California, Idaho, Nevada, New Mexico, Louisiana, Texas, Wisconsin and Washington. In a community property state all debts, money and property are equally owned and shared by a married couple.
Even if one spouse applies for and assumes a loan or mortgage, both spouses are responsible and liable for paying back the debt. After the death of a spouse, the surviving spouse can be fully liable for all debts assumed by the deceased spouse in a community property state.
Final Expense Insurance
Surviving loved ones can use final expense insurance to pay for the medical bills, end-of-life related expenses and for a funeral. The average funeral costs over $7,000 at the lower end of the average. The costs associated with medical bills, death and funeral arrangements are not usually calculated by people because they don’t discuss it or fully consider it until it’s too late.
Applying for final expense insurance does not require a medical exam. Almost all applicants are accepted, and premiums are affordable, usually amounting to a few dollars a month. The application process can be performed over the phone. Most final expense insurance policies can be worth anywhere from $2,000 to $25,000. Owning such a policy could be the financial buffer you need to pay for a loved one’s funeral costs, especially if you end up assuming unexpected posthumous debt responsibilities.
Tip: Search for multiple final expense insurance quotes here.
Never Assume Your Liabilities
You should never assume your posthumous debt responsibilities if you have inherited such. Depending on the law and where you live creditors may not be able to collect posthumous debt, even if they make you believe that they can. Always consult legal advice concerning your responsibilities to pay off the debt of deceased relatives.
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