So, who pays your debts when you’re gone? Your spouse? Your kids? What happens when someone dies, leaving debts and not enough money to pay them?
The Good News About What Happens to Debts When You Die
Here’s the good news: No one else is required to pay your debts, as long as they are not on the debt, too. Your spouse, your kids, your executor, your power of attorney – none of those people are required to pay off your debts with their money. What they are required to do is use your money to pay your debts. But if your money runs out, then the creditors are just plain out of luck.
The Vital News About What Happens to Debts Upon Death
Although your debts die with you, they can still haunt your family and the assets you leave behind. Maybe you’re thinking – I pay my bills on time, why should I worry about debts after I die? We should broaden our definition of “debt” – it is not just overdue bills that may be left unpaid at your death. There are other types of financial obligations that could end up haunting those you care most about. Let’s look at a few examples…
Your house. Suppose you have a house with a mortgage. When you’re gone, the mortgage must be paid or refinanced. Will your spouse be able to stay in the house?
Your property. Failure to plan for the skyrocketing costs of long-term care can result in the state putting a lien on your real estate.
Your business. Without planning, your business may be at risk. Does the business depend on a loan or credit line based on you? Without you, will the business be able to access needed bank credit?
Your partners. If you’re in business with a partner, how will your share be bought out at your death? How will your family be able to access your wealth that is tied up in the business?
The family farm. Do you have a child who farms and other children who don’t? What is your “debt” to each of the kids? Without a plan, the child who farms may be left without a way to make a living.
College. How strong is your desire to help your kids (or grandkids) get an education? Does it rise to the moral obligation of a “debt”? When it comes time for them to start college, how can you ensure the funds are there for them, even if you’re gone?
Uncle Sam. Many of us have IRAs or annuities. With these types of investments, taxes are deferred during your life, but after you are gone, someone will owe those taxes. Do you know how much tax your family might owe after your death?
While you may not leave behind unpaid credit card bills or overdue bank loans, you will most likely leave behind these other financial obligations. It is vital that you have a plan in place to see that your obligations are taken care of. Without a plan, your family will be left paying – in legal fees, time, stress, frustration, and strained relationships.
Planning for these scenarios requires more than just a legal document – it requires an integrated legal and financial plan. We help clients do this every day at Edwards Group. Let us help you, too. Call us at 217-726-9200 to schedule an Initial Meeting where you’ll discover where your family is at risk, and how to have true peace of mind when it comes to planning.