According to NerdWallet’s yearly Credit Card Debt Study for 2022, American households carry an average debt load of $155,622. When dying with outstanding debts, the executor named in your will may need to pay some of them from your estate’s assets.
Surviving spouses and heirs generally do not inherit the deceased’s debts. Creditors, however, have rights to file claims against an estate in probate court. If you have credit card bills, a car loan or a mortgage, you may wish to consider them as part of your estate plans to prevent complications or probate issues.
Which debts may discharge or continue when I die?
Kiplinger’s Personal Finance notes that federal student loan debts discharge at death. The balance discharges whether you borrowed funds for yourself or your children to attend school. Your estate’s executor may submit a certificate of death as proof when requesting to settle the matter.
Student loans held by private lenders, however, do not discharge. Lenders could file a claim against the estate to collect the balance. Your estate may also need to pay off credit card balances. If you own joint accounts with your spouse or children, lenders could continue to collect the debt from them after your death.
Which assets may the court use to pay off my debts?
Before the assets listed in your will transfer to your heirs, your executor could work with your creditors to pay certain debts. As noted by Bankrate.com, cash left in your bank account may go toward creditors’ claims. If you hold stocks, your executor could sell them and use the proceeds to settle your debts.
To prevent creditor claims during probate, individuals could consider adding beneficiaries to their financial accounts. Transferring funds in payable-on-death accounts to named beneficiaries does not generally require probate. Beneficiaries may receive the remaining balances when the account owner dies.