November 20, 2015

Although there’s plenty of talk about how you should prepare your assets for your death, it’s also beneficial to think about handling your debts.

If you have a will, the assets in your estate will be handed over to the state for determining your next of kin. A living will gives you the opportunity to have a say in where your estate is headed, though.

Once you have passed away, your estate will owe your final debts. If you have assets in your estate to pay for these, an executor will be responsible for selling those assets and settling with creditors. In most cases, if your estate cannot cover these debts, then the debts will die when you do. This is not always the case, though.

The major exception to your dying debts is when a loved one serves as a guarantor or co-signer on one of your loans. This means that this individual assumes the debt if you are unable to pay for it.

Student loans with the federal government will die when you do, but private student loans can be particularly difficult to get rid of- if there’s a co-signer and no assets in your estate, the banks can come after the co-signer. If you do have assets in your estate, a private student loan can quickly eat through these. 

Planning ahead for your estate can give you a realistic expectation about what your heirs may actually receive after debts have been paid. Talk to an estate planning lawyer to learn more.