MONEY TALKS

This month, we dive into the uncomfortable topic of what happens to your debt after death.

Dealing with debt after death

TWO OF THE MOST UNCOMFORTABLE TOPICS TO TALK ABOUT CAN BE MONEY AND DEATH. Combine them and you’ll notice most people fidget in their seats, avoid eye contact and find ways to quickly get out of the conversation. No one wants to die, let alone talk about it; however, death can have some serious implications on your finances, so it’s worth taking a deep breath, being realistic and making some decisions now that will protect your family later. Here, we provide the truth about some common misconceptions.

MYTH 1 When I die, my family will have to pay off my debts.

It depends on how your debt is structured. If the debt is solely in your name, your debt will die with you. This means that your family is not obligated to pay it off. However, it’s important to understand that your creditor(s) has the right to look to your estate for payment. Whoever is your estate executor will be required to probate your estate and deal with any outstanding creditors before any funds are disbursed to family and friends, as per your wishes.

MYTH 2 When I die, the creditors are going to take everything.

This is not true. You can protect some of your assets by creating a direct beneficiary. For example, if you have a life insurance policy, you can make a specific person or people inherit directly. This means that upon your passing, the funds will go straight to those you’ve identified, circumventing the probate process.

MYTH 3 When I die, my joint or co-signed debts die with me.

Unfortunately, this isn’t accurate. If you have any joint or co-signed debts, the co-signatory will be solely responsible for paying them off.

Some ways that you can protect your loved ones when it comes to your debts after death include:

• Have an up-to-date estate plan, including a health-care directive, power of attorney and will. Yes, it’s uncomfortable to talk about your own death; however, having a clear plan eliminates the need for family to make tough decisions.

• Create direct beneficiaries whenever possible. This ensures that your loved ones get the funds they need quickly instead of having to wait for the probate process to be completed.

• Ensure you have adequate life insurance to cover your obligations and protect your family. Life insurance can give you and your family peace of mind that in the event of your passing, there are enough funds to pay for a funeral, deal with your debts and protect your assets. This in turn gives your family the time and space they need to make decisions about how to carry on.