Most Americans live with debt their entire lives, whether it’s student loans, mortgage loans or even credit card debt. However, most Americans also pass away with debt.
According to a study from Experian, almost 75% of Americans die with debt, with an average of around $60,000. Unfortunately, the debt doesn’t disappear after a loved one passes on. Instead, it becomes a burden for their friends and family.
What is classified as debt?
When someone passes, all their assets and finances go through probate court where the court reviews all the assets and tries to pay off all the person’s bills, expenses and debt. For the remaining assets and debt, the court will divide it among the person’s beneficiaries.
Some of the most common forms of debt in probate are:
- mortgages
- lines of credit
- property taxes
- federal and state income taxes
- car loans
- personal loans
- loans against life insurance
- credit card bills
- cellphone bills
The court distinguishes all the debt into two categories: administrative expenses and final bills. Final bills are mostly covered through the estate process and include credit card bills and personal loans.
Administrative expenses are more problematic because the beneficiaries have to pay these expenses until the probate estate is opened. It could lead to years of fighting in court over assets and covering additional debt from passed loved ones.
What Can An Executor Do?
However, the executor of an estate will be in charge of organizing payments for administrative expenses and settling any final bills after the probate opens. Most executors work with creditors and beneficiaries to determine a settlement that works for everyone.
If the executor doesn’t find a compromise, there is a possibility to inherit debt, including cosigned debts, home equity loans on an inherited house and debt related to timeshares.
It makes it incredibly important to plan what will happen to your debt when you die, even if it is unpleasant to discuss. It will help your loved ones and protect them from a horrible experience in probate court.
