Dear Savvy Senior
What happens to a person's debt after they die? At age 78, I have accumulated quite a bit of credit card and medical debt over the past few years and am concerned about leaving my son and daughter with a big bill after I die. What can you tell me?
Old and Broke
In most cases when a person with debt dies, it's their estate, not their kids that's legally responsible. Here's how it works.
When you die, your estate -- which consists of the stuff you own while you're alive (home, car, cash, etc.) -- will be responsible for paying your debts. Whatever is left over is passed along to your heirs as dictated by the terms of your will, if you have one. If you don't have a will, the intestacy laws of the state you reside in (see MyStateWill.com) will determine how his estate will be distributed.
If, however, you die broke, or there isn't enough money left over to pay your unsecured debts -- credit cards, medical bills, personal loans -- then your estate is declared insolvent and your creditors (those you owe) will have to eat the loss.
There are, however, a couple of exceptions that would make your kids legally responsible for your unsecured debt after you pass away: if your son or daughter is a joint holder on a credit card account that you owe on, or if they co-signed on a loan with you.
Secured debts -- loans attached to an asset such as a house or a car -- are another story. If you have a mortgage or car loan when you die, those monthly payments will need to be made by your estate or heirs, or the lender can seize the property.
You also need to be aware that there are some assets, such as 401(k) and 403(b) accounts, brokerage accounts, and some life insurance policies that creditors cannot get access to. That's because these accounts typically have designated beneficiaries, and the money goes directly to those people without passing through the estate.
Tell Your Kids
If you haven't already done so, you need to inform your kids and the executor of your will of your financial situation so there are no surprises after you die.
If you do indeed die with debt and you have no assets, settling your estate should be fairly simple. Your executor will need to send out letters to your creditors explaining the situation, including a copy of your death certificate, and that will probably take care of it. But your kids may still have to deal with aggressive debt collectors who try to guilt them into paying.
If you have some assets but not enough to pay all your debts, your state's probate court has a distinct list of what bills get priority. The details vary by state, but generally estate administrating fees, funeral expenses, taxes and last illness medical bills get paid first, followed by secured debts and lastly credit card debts.
If you have questions regarding your specific situation, you should consult with an attorney. If you need help locating one, use FindLegalHelp.org, a consumers guide created by the American Bar Association that offers referrals and links to free and low-cost legal help in your area based on your income level. If you don't have internet access, call the Eldercare Locator at 800-677-1116 for referrals.
Send your senior questions to Savvy Senior, P.O. Box 5443, Norman, OK 73070, or visit SavvySenior.org. Jim Miller is a contributor to the NBC Today show and author of "The Savvy Senior" book.
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