According to a recent report from Experian, 73 percent of Americans died owing some form of debt. And while this amount may be relatively minor for some—totaling no more than a few hundred dollars—for many of us, the costs can easily skyrocket into hundreds of thousands of dollars. And it doesn’t necessarily disappear overnight if you die. It can affect the assets of the estate you hoped to leave behind; and subsequently, your family’s well being. So, what happens to your debt when you die? Who is responsible for the debt and what estate assets are protected form creditors?

What Happens to Your Debt When You Die?

Death may be an inevitable fact; but not when it comes to debt, it’s somewhat more complicated. But what happens to your debt when you die? Does debt go with you when you pass on?

Ideally, the responsibility of paying off your debts in will fall on the executor of your estate. And your estate consists of everything you owned up until your death—including physical property, investments, bank accounts and loans. But that also includes your debt. And if the executor happens to be a family member, the burden is more than merely a question of an inconvenience.

Who Owes?

Generally speaking, there is no legal responsibility on behalf of a family member, spouse or other heirs to pay out of pocket for your debts. Your debt should ultimately be covered by the assets in your probate estate. However, exceptions are made if:

• A loan was taken out with a co-signer.
• A joint credit card account was issued that represents a significant portion of the debt
• Car loans were acquired with a surviving co-signer.
• There is an outstanding bill of property for real estate jointly owned.
• The surviving spouse co-owned property or ran up credit card debts in a federally recognized community property state. While Utah is not recognized as one, Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are.
• If a home is jointly owned with right of survivorship, the survivor receives the home and takes responsibility for mortgage obligations. Federal law currently prohibits joint owners to pay off mortgage debt immediately following the death of a co-owner, however.

Lenders can legally require the inheritor of an estate in Utah to pay off home equity loans; and more often than not, those amounts may frequently involve the sale of any property covered.

What’s Safe?

• Life Insurance Benefits:
  • Since life insurance is generally protected from creditors, life insurance benefits are typically not considered part of a probated estate so long as the deceased completed a designated beneficiary form.
• Term Life Insurance Policies:
  • Term life insurance policies provide a death benefit for a set number of years, are well suited for many people looking for an alternative to traditional life insurance policies; with an additional bonus of being more cost effective, as well.
• IRAs/401Ks
  • Likewise, if at least one designated beneficiary survives the deceased, a retirement account will pass directly to that person outside of probate.
• Individual Assets
  • While this can vary from state to state legally, assets such as bank accounts, investment accounts, stocks, bonds and personal property will generally likely not be entered into probate so long as the deceased has nominated a designated beneficiary.

Statute of Limitations on Debt Collection

According to Utah code the statute of limitations is the limited time a debt collectors can seek legal help collecting an unpaid debt. When the statute of limitations has expired, the debt is time-barred and the debt collectors can no longer sue debtors over the unpaid debt. Debt collectors can, however, still continue to attempt to collect the unpaid debt indefinitely.

According to this attorney site “In Utah, the statute of limitations for any signed written contract, obligation or liability is 6 years. For unwritten (verbal) contracts, obligations, or liabilities, the statute of limitation for an unpaid debt expires after 4 years. Unpaid debt from open accounts for goods, wares, merchandise, and services rendered or for the price of any article charged on a store account has a statute of limitation of 4 years, after which debt collectors can no longer utilize the legal system to recover the debt.”

Conclusion

Planning for a estate is never a simple task. It requires forethought, careful selection of an executor and designated beneficiaries and a formative amount of understanding of both ownership and benefit. But it’s also a necessary one.

You’ve provided for your loved ones all your life. And while you’ve helped to alleviate their burden, the last thing they need is for your debt to survive after your death. And that’s one legacy neither of you can afford to pass on.

If you’re looking for an efficient way of ensuring available assets for your loved ones after your death, we can arrange for the purchase of your property in accordance with your legal will. We’ve been buying homes in Utah since 2009; why not let us do the same for you? Email us at gary@garybuyshouses.com.