As a general rule, you can’t pass on your individual debts to your loved ones when you pass away, but what about joint debts or loans for which a loved one has co-signed? If you pass away, responsibility for paying these debts will fall to the person who signed for the debt along with you. And if this person is your spouse or one of your children, the consequences when you pass away can be devastating.
The sad fact is that when a loved one is left on the hook for a credit card or loan balance, he or she might be forced to scramble to sell off assets in order to service the debt. Even worse, sometimes a surviving spouse is forced into bankruptcy because there simply are not enough assets to cover the amount owed.
What steps can you take to minimize the impact of debt on your surviving spouse or children? First, make sure you understand which of your debts will be paid from your estate, and which debts will become the personal responsibility of your loved ones. Your estate planning attorney can help you make this determination.
Second, make sure you leave behind enough life insurance proceeds to enable your loved ones to pay that debt.
Third, if you don’t already have a plan for reducing or eliminating your debt, now is the time to start one.
Your estate planning attorney can suggest more strategies for helping you reduce the impact that debt may have on your loved ones in the event of your death.