When you pass away, your estate is all the money, goods and property that you own that must be distributed after you die. There are exceptions to certain property and money that may not be included in your estate.
A common question involves debts instead of assets. Many people wonder what will happen to their debts after they pass away. Your debts will be paid from your estate. This is done before the other claims on the estate can be met. This is done even if you have a will in place.
Your creditors can sue your estate for the remaining balance on outstanding debts. If you don’t have an estate, then the debts cannot be paid. The only way your relatives can be held responsible for your debts is if they provided some type of guarantee to the creditor, such as being a co-signer on a loan.
According to a federal law passed in 1982, if and your spouse own a home, your spouse will become the owner of the home when you pass away. The home is not considered a part of your estate, although your spouse will now be responsible for the mortgage. However, if you own the home and it is only in your name, then it is considered part of your estate. It can be used to pay for your debts.
Some insurance policies list a beneficiary. If you have named someone as a beneficiary to a life insurance policy, the amount of the policy is not considered part of your estate.
These are just a few of the ways that debt can be handled after you pass away. An attorney can provide you more information.
Source: Forbes, “What Happens To Your Debt After You Die?,” Steven Richmond, accessed July 08, 2016