Like many retired Arizonans, you have built a sizeable estate that you are pleased to share with your loved ones when you are gone. However, you may also have significant debt that keeps you up at night worrying. What happens if you do not pay all of your debt before you die? Will your spouse, siblings, children or grandchildren be held responsible for your debt?
It can give you great peace of mind to learn that generally, your outstanding debt will not be the responsibility of your loved ones. NerdWallet explains how debt after death is handled:
- Before your will’s executor divides your estate among the beneficiaries, he or she will liquidate assets to repay your outstanding debt.
- Your spouse would likely continue making payments on marital debt – such as joint credit cards. However, debt that was yours before you married should not be the responsibility of your spouse.
- Anyone who co-signed on a loan with you would be responsible for taking over the payments.
- If you leave your home or property to a relative, the mortgage, home equity loans, auto loans or other outstanding debt is theirs to repay, unless they decide to sell the property to satisfy the loan.
As you can see, with a sizeable estate, your creditors may likely be satisfied and your loved ones left with an inheritance they can enjoy. If you are still concerned about leaving an inheritance for your relatives, you may consider a life insurance policy. Your creditors will not have a claim on your life insurance policy, which is only for the beneficiaries. It may help to speak with a financial advisor about effectively addressing your debt while you are alive, as well as choosing a life insurance policy that best fits your family’s needs. It is also a good idea to consider updating your will and trusts occasionally.