When death comes back and bites you in the finances
Death is a very delicate subject for many and when you pair it with the word debt, the room might start to spin. Some may think that after their parent or grandparent’s death, they’re home free and not liable for any debt accrued in their name. This isn’t always the case, and in some circumstances, it can actually come back to haunt you.
Credit Card Debt
With 40 percent of low and middle income families in America charging their basic living expenses to credit cards, it isn’t uncommon for people who unexpectedly pass away to do so with debt in their name. Should they have any negative balances, the executor of their estate must be told in a timely manner what they owe. If the deceased’s assets can cover the amount, they’re required to pay out the debt in full. Credit card companies are not allowed to charge fees or penalties while settling any financial obligations left behind.
Under no circumstance, but one, can you simply inherit the deceased’s debt. If you have a joint account with the person who has passed away, only then will you be held liable for the debt held together. This does not mean that you have to be directly related to the person who died. If you signed an agreement when opening the account with another person, you agreed to pay their debt should they pass.
The last thing you want as a reminder of your loved one is their hospital bill. Unfortunately, if you are chosen to handle their affairs after death, you’ll have to find a way to manage a number of financial woes. The person who inherits the estate, referred to as the descendant, has one year to pay off the amount owed to the medical institution from the inheritance. If the amount owed exceeds the total of the estate, the descendant is not liable for the remaining amount owed. Filing a person’s final form — a 1040 — can cover the medical bills if they exceed 7.5 percent of the deceased income for the year.
A common issue with this is that many medical bills far exceed this amount, especially if the person died very early in the year without accruing a great deal of income. In this case, the money left from their estate is responsible for the remaining balance.
If you aren’t accustomed to how finances are handled after death, you might find it very unclear as to where this money goes. While it may be tempting, you shouldn’t write any checks or use any debit cards without knowing exactly how the process works. In every case this is considered fraud and should be avoided at all costs. If you have an emergency and need cash, there are other options such as online loans.
If the deceased has not named anyone as heir, the estate will rest in the hands of the court and the court will divvy up the assets as they see fit. Should a relative need to cover funeral costs or any other expenses as a result of the death, the court can issue a letter to give certain parties limited control. The only time a bank account can be fully accessible from the day of death is if the deceased left an executor or if they had a joint account with another person.
Houses and Mortgages
After death, and before the home and subsequent assets can be passed on to a beneficiary, you must pay the piper; that is to say, the bank. The administrator of your estate must pay any remaining debt to your name, including the mortgage on your house. If the deceased was single or the sole owner of a home, the administrator must use savings, life insurance proceeds, or sell the home to make up for any debt that may still be owed.
However, if you are married and your spouse is also on the deed, the surviving person will automatically become the owner of the house. If both you and your spouse pass away, and the mortgage had a co-signer, such as your parents, the mortgage therefore falls into your parents’ responsibility.
The mortgage must be paid in full before it can pass on to your beneficiaries. Though, if the estate needs to be sold to make up for any remaining mortgage, the additional money from the sale would pass on to your beneficiaries instead.
Remember that you should always make plans to cover your expenses after death, even if you feel it’s highly unlikely that such a situation would occur. Even if you have no money or assets, and the debt won’t be passed down, you should still ensure that your family wouldn’t suffer from undue hardship as a result of your passing.