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Dealing with debts after your death

If you are savvy about the importance of estate planning, you may have already taken steps to prepare for the time when you are no longer here. You may have a will signed and witnessed according to the laws of California. Perhaps you have designated your power of attorney and made an advanced directive to address any financial or health issues that may arise if you should become incapacitated. You may even have purchased a cemetery plot, arranged your funeral and ordered a headstone or urn vault.

There may be one thing left to do: pay off your debt. Many have an incorrect notion that their debts die with them. However, if you have numerous creditors, you may be leaving your loved ones with a troublesome burden that could eat away at the estate you have so carefully planned.

Your estate's obligations

The executor you have chosen will be responsible for dealing with your debts before taking any steps to hand your belongings over to your chosen heirs. This means that any money in your bank accounts or other liquid assets will go to your creditors. Each state has an order of priority in which your executor must pay any lenders, and paying certain bills first — such as funeral expenses, hospital bills and taxes — may take up a substantial amount of your estate.

Of course, if you have joint accounts, such as credit cards or a mortgage, and the co-account holder is still living, he or she may have to take on the full responsibility of the debt. California is a community property state, and this means your surviving spouse may carry the weight of any loans you leave behind when your die. Additionally, if you co-signed a loan, the person on the loan with you may be left to pay the balance of the loan.

Settled or saddled?

In some cases, the lender forgives the remaining debt after you die. For example, if you have a student loan, or if your estate runs out of money before getting to the credit card debt, those entities may forgive the balance and not require your heirs or executor to cough up the money.

However, if you leave your house to an heir, you must consider that you may also be leaving a mortgage. The same is true for a car for which you still owe money. In some cases, the lender may require anyone who inherits your house to pay the balance of the mortgage right away, and this may force your heirs to sell your home.

After taking the steps to protect your loved ones and manage your assets, you certainly don't want to leave your family with the burden of your debts. Seeking professional advice about these matters may afford you peace of mind as you look forward to the gentler years of your life.

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Law Office of Jeffrey B. Pape, P.C.
642 Pollasky Avenue
Suite 100
Clovis, CA 93612

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Fax: 559-299-0920
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