What debt dies with me?

We live in an age in which taking on debt is more common than previous times. Where debt used to be limited to the purchase of homes and vehicles, many families now accumulate debt for smaller, less significant purchases.

In today’s world, you can make payments on purchases under $100. For this, and many reasons, it is essential to understand how debt could impact the implementation of your estate plan. It is equally critical to know whether your loved ones could be responsible for debt they didn’t incur.

Here’s what you should know about outstanding debt that could reach beyond the grave.

There are a few easy answers

When it is time to probate an estate, certain groups will request payment from the proceeds of the estate, including:

• Tax collecting entities (like state and federal government)
• Debtors
• Beneficiaries

Part of the process of probate administration is making sure everyone is paid in the correct order from the assets of an estate, if at all. In most cases, the estate will pay the costs of administration first; burial expenses and necessary taxes after that; valid claims next; and heirs and beneficiaries last.

Paying off debt

For the most part, debt that is exclusively in your name that exceeds the value of available assets and cannot be paid by your estate, can include obligations such as:

• Personal and unsecured loans
• Credit cards
• Unsecured portions of auto loans

If there are assets remaining after the payment of the costs of administration, burial, taxes, and valid claims, your heirs and beneficiaries will receive the remainder according to the provisions outlined in your will and other estate documents.

What about federal loans?

Some types of debt do not qualify for relief through bankruptcy and other debt remediation methods, so people often wonder what happens to these debts after they pass away. There are several scenarios depending on different types of loans, so there is no one answer that fits every situation.