What Happens with Debts when You Pass Away?
There are a few types of debt that will be forgiven upon your death. However, in most cases, debts and other financial obligations you have will be paid out of your estate.
The following is a quick look at some of the most common types of debts and how they get handled when the debtor passes away:
- Vehicle loans: Your vehicle loans must be paid off either by your estate or the person who inherits the vehicle, or the vehicle can be repossessed. If the vehicle is not worth enough, the lender might also get paid the difference between the loan value and the vehicle value from your estate.
- Mortgages: Just as with vehicle loans, your mortgages must be paid according to their terms either by your estate or the person(s) who inherit your property. The beneficiary who receives the property will typically assume the debt for it. But, you can also have your personal representative pay off the loan and transfer the property debt free.
- Credit card debt: This is the most common type of debt deceased individuals leave behind, and it may vary widely in value from person to person. Credit card companies might simply write off the debt if the estate does not have much money. Creditors will handle the situation in different ways, however, so your attorney can provide you with more information on how best to deal with credit card debt in your estate plan. But, sometimes a survivor is also responsible on a credit card account, in which case, the credit card company will look to the survivor for payment as well.
- Leases: Lease terms typically include provisions that cover the death of the lessee, so be sure to consult an attorney to make sure you understand your lease terms.
- Income taxes: You must pay any owed state and federal income taxes at your death, as well taxes on money you earned in your death year. This money will come out of your estate.
- Business debts: Your estate’s liability for business debts depends on your business structure. If you assumed personal liability for business debts, that money will have to come from your estate.
For more tips and guidance regarding how you can handle debts in your estate, meet with an experienced Tampa estate planning attorney at BaumannKangas Estate Law.