What happens when a family member passes away, but he or she has unpaid debt? Do relatives have to pay off the liabilities?
Today, the estate planning attorneys at Davidson Law Group help to explain debt and wills.
Receiving and Forgiving Debts
First, it’s important to understand how to receive and forgive debts. If someone owes you money, it will be collected and added to your overall estate. However, you can choose to forgive a debt in your last will. When a friend or family member passes away, his or her property is used to pay probate, funeral expenses and then to pay debts. In general, all debts must be paid before any assets are distributed to heirs.
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Bills Your Estate May Have to Pay
There are certain types of debt that can be discharged upon death. However, many debt obligations will remain. When you die, your estate may be responsible for a range of expenses and debts.
Secured debts, protected by a hold against property, are not discharged upon death. Secured debts include things such as car loans or home mortgages. If a person passes away with a mortgage on his or her home, whoever inherits the house also inherits the debt. In other words, the debt goes along with the distributed property.
Unsecured debts are not tied to a specific property. Medical bills, utility bills, and most credit card bills are common examples of unsecured debts. These expenses are not discharged upon death and must be paid by your executor out of assets from the estate.
Student loans may be discharged upon the borrower’s death, so the debt is not a burden on the estate or the beneficiaries. Proof of death must be provided to the school or the lender.
Leaving Instructions in Your Will
You can leave instructions in your will about how to pay off unsecured debts, and you must choose which assets your executor should use to pay your debt. In many instances, tangible assets may be sold to pay off the debt in the estate. Tangible assets include things such as coin collections, vehicles, and real estate. Liquid assets may also be used to pay off the debt in the estate, including bank accounts, stocks, and bonds. Liquid assets are easily converted into cash at full value.
Another option is to purchase a life insurance policy that is intended to cover all debts and expenses.
It is recommended to identify primary as well as alternative assets to be used for the repayment of debt in your estate. If there are not sufficient instructions for handling estate debt, your executor will choose which assets are used.
Contact Davidson Law Group
If you’re unsure about how to resolve debts in your will, contact the estate planning attorneys at Davidson Law Group. Browse our website for our other practice areas or schedule a free consultation in Fort Worth, Allen, or Tyler today. We look forward to hearing from you.