Find out what happens to debt when you die and learn how to protect your heirs from the hassle and expense of probate so they're taken care of.
Money Girl
196 MG Who Pays Your Debt When You Die?
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Hi everyone and welcome back to Money Girls Quick and Dirty Tips for a richer life. I'm Laura Adams. I know it's a depressing topic, but at some point you've probably wondered who picks up the tab for a dead person's debt? Are you responsible for a parent's debt after they're gone, for instance? And will anyone inherit your debt after you depart this world? We'll answer those questions and cover what you need to know about the financial side of death in this podcast. The moment you die, something is automatically created. No, I'm not talking about a phoenix rising from the ashes or anything spiritual here. Your physical death gives birth to your legal estate, which is simply what you own when you die, no matter how big and fancy or how small and simple it is. The value of your estate is calculated by adding up all your assets, like cash accounts, investments, vehicles and real estate, and then subtracting out the total of everything you owe. After you die, someone has to handle the logistics of your estate. That person is called an executor, and hopefully you've already named a trustworthy one in your will. A judge will appoint an executor for you if you die without a will. Probate is the legal process that an executor goes through to verify your will and to distribute your property. It can take a long time and involve lots of attorney and court fees, depending on the size and complexity of your estate. The executor may be given permission by the court to sell your possessions, to pay your debts and taxes, and to distribute what remains to those named in your will. If you don't have a will, your remaining property goes to your relatives according to a formula determined by the state in which you live. That means everything you own could go to family members that you haven't spoken to in years. If you can keep some or all of your property out of the probate process, your heirs will thank you because your estate will be larger and they'll receive an inheritance faster. I'll give you tips about how to legally avoid probate at the end of the show. So let's get back to who pays your debts when you die. Anything in your estate is used to settle debts that are in your name only. If there's not enough money or assets to sell to cover them, then your creditors are generally out of luck. There's nothing they can do if your estate is insolvent or broke. Debt in your name only doesn't get passed to your spouse, partner, children, or siblings. It becomes the responsibility of your estate. However, if you live in a community property state and are married, your spouse may still be liable for debt accumulated during your marriage, even if it's in your name only. After your unsecured debts, like credit cards and medical bills are paid up, any remaining money and assets can be distributed to beneficiaries named in your will. It's important to note that if you leave property that's secured by a debt, like a house car or boat to someone, they'll be responsible for paying the debt. I used to travel a lot for work, and one time I overheard a conversation in an airport between two young women. One was telling the other that when someone dies and leaves you a house, that the mortgage just gets wiped away. I could barely hold my tongue because that's not true, but I had to rush off and catch my next plane. Obviously, people are confused or misinformed about this issue. Here's the quick and dirty truth. If you leave your sister, your house, or a fancy car, and she can't afford to make the monthly loan payments, she'll probably be forced to sell it to get out from under the debt. Now, let's talk about how debt on a joint account is handled after you die. If you cosign for a credit card or a loan with your spouse or boyfriend, they'll be responsible for the debt when you die. Each person on a shared account is responsible for the full amount, even if you made secret credit card charges the other person didn't know about. That's why agreeing to cosign for a debt can be a really bad idea. It's easy to create ways to transfer money and property to your heirs, so it legally stays out of probate. It saves your supply chain wizard. He also has diabetes. Maybe it's time for a group dental plan with support for chronic conditions. Grin from within, United Concordia Dental. Learn more at Grin with ucd.com products under written by United Concordia Insurance Company. He's better over here. AT&T customers switching to T-Mobile has never been easier. We'll pay off your existing phone and give you a new one free, all on America's largest 5G network. 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Their videos, lessons, sample problems and learning games too. One subscription to I XL gets you all subjects and all grade levels. Membership started just $9.95 a month. It's no wonder I XL is used in 95 of the top 100 school districts. I think the positive feedback that I XL gives is really crucial when it comes to learning. So make an impact on your child's learning. Get I XL now and money girl listeners can get an exclusive 20% off I XL membership when they sign up today at ixl.com/moneygirl. Visit ixl.com/moneygirl to get the most effective learning program out there at the best price. Here are seven tips to avoid the complicated and expensive probate process. Number one, create joint accounts. A joint bank or brokerage account passes directly to your co-owner. Number two, set up payable on death or POD accounts. You can designate a bank account or a retirement account to be payable directly to a beneficiary after you die. Number three, set up transfer on death or TOD accounts. You can designate a security such as a stock bond or a mutual fund to transfer directly to a beneficiary upon your death. Number four, set up transfer on death registrations and deeds. In a few states, you can register a beneficiary for your vehicle and real estate so they'll own it right after you die. Number five, own real estate jointly. Hold title to property so it automatically passes to a surviving owner when you die. Depending on where you live and whether you're married or not, it might be called joint tenancy. Tenancy by the entirety or community property with a right of survivorship. Number six, set up a living trust. Property in a trust is not part of your estate for the purposes of probate because it transfers to a trustee. Then the trustee can easily transfer the property to your heirs. And seven, give gifts. If you give property away while you're alive, it doesn't go through probate. Check out the MoneyGirl Facebook page for more tips, resources, and money-saving ideas. You'll also find me on Twitter at twitter.com/LaraAdams And when you visit quickanddirtytips.com, be sure to subscribe to the MoneyGirl free email newsletter for exclusive content that isn't available anywhere else. And you can submit your money questions to me at money@quickanddirtytips.com. I'm glad you're listening to change. If that's all for now, courtesy of MoneyGirl, your guide to a richer life. [MUSIC] Kendra manages your payroll. She's also six weeks pregnant. Maybe it's time for a group dental plan with extra TLC for moms to be. Grin from within, United Concordia Dental. Learn more at grinwithucd.com products under written by United Concordia Insurance Company. When you need meal time inspiration, it's worth shopping king supers for thousands of advertising ingredients that inspire countless mouth-watering meals. 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