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What happens to debts after a person dies

Gregory A. Lang

When someone passes away in Minnesota, friends and family may expect to receive a portion of the individual's assets based on what is in their will. However, there are some cases where individuals die with unpaid debts, and people may worry that they will be held responsible for paying off credit card balances or automobile loans.

The good news is that in most cases, while the debt does not go away when someone dies, an individual's heirs are not obligated to pay it, although the remaining debt may reduce what someone is able to inherit. When a person dies, their assets and debts are controlled by their estate, and the executor in the case of a will, or the court-appointed administrator if the person died intestate, is responsible for ensuring all obligations are met, including debt settlement, before distributing property.

In some instances, the assets left behind are not sufficient to cover what someone owed to creditors. While this is likely to mean that there is nothing left for inheritances, there are few cases where another individual would be required to pay the remaining balances. The exceptions are if someone has cosigned a loan or on a credit card or if the person is living in a community property state and the debt belonged to their spouse.

Having an estate plan in place can help ensure that people's wishes are followed once they pass on as well as preventing heirs from having to deal with drawn out and expensive legal battles. An estate planning attorney could help someone set up documents such as will, trusts and powers of attorney to help preserve and protect assets.

Source: The Motley Fool, "What Happens to Credit Card Debt When Someone Dies", Peter Andrew, July 19, 2014

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