What Happens to Your Debt When You die

By Lane V. Erickson, Idaho Estate Planning Attorney

One of the services provided by the Racine law office when it comes to helping our clients with estate planning is a free 30-minute consultation. During this consultation we review the Estate Planning Questionnaire with our clients to answer their questions and to help them understand the areas of estate planning they should consider and complete. It’s during this meeting that we can help our clients understand the need for at least a basic estate plan which would include a last will and testament, a durable power of attorney, a living will and a healthcare power of attorney. We can also determine whether our clients need additional estate planning documents such as one or more of the various trusts that could be completed.

Through our knowledge and experience our team of Idaho estate planning attorneys are able to provide advice and counsel to each client about options that will meet their specific and unique needs. Our team includes partners Randy Budge and Lane Erickson and attorneys Nate Palmer and Dave Bagley. Our team of Idaho estate planning lawyers has been helping clients for more than 70 years. This alone is not enough to qualify us to be considered one of the premier estate planning and probate firms in Idaho. Rather, it is our experience and knowledge that gives us the ability to help each client complete their own customized estate plan.

Recently, in a meeting with a client, a question was asked that leads to the topic for today’s article. The question was: “What happens to my debt when I die?” This is a great question and one that each of us should think through as part of our estate planning. I talked with this particular client about the different kinds of debt that he had and what would happen to each of those debts after he died.

The first thing to understand is that your family and loved ones will not automatically become responsible for your debts. In other words, unless your spouse or other family members are co-signers on the debt which makes them obligated to pay the debt the same as you, they will have no obligations to pay your debt. However, your family members and loved ones cannot take any portion of your estate until after your debts and expenses are satisfied. In fact, one of the major purposes of probate is to determine the legitimate debts you had when you died, and make sure that those debts are paid in full from the money, property, and other assets in your estate before any distributions are made to anyone based on your will, or on any other instructions you have given. In other words, debts are paid first, then distributions are made.

If there are not enough assets, money, and property in your estate to pay all of your debts, then the remaining sum that is owed simply goes away. So long as they have not received any distribution from your estate, your family members and loved ones are not obligated to pay the difference.

To further illustrate how this works, we will talk about what happens to the mortgage debt on your home after you die. We will also talk about what happens to your credit card debt. Additionally, we will provide a short discussion on your student loans and on other debt that may exist. However, this article is not designed to cover everything. Rather is is just a starting place to help you. If you have questions, we encourage you to contact us to schedule a free 30-minute consultation where we can answer your specific questions.

Having a mortgage on your home is one of the most common types of debt that individuals have. Dealing with this debt after your death is rather simple. If you are married, it’s likely that your spouse is already listed as one of the debtors on the mortgage. As a result, your spouse would be obligated to continue to make the mortgage payments on the home.

If you are not married, and you have a mortgage on your home and pass away the process is still fairly simple. If you have other family members or loved ones that you want to pass your home too, these individuals will be required to continue making your mortgage payments in order to retain ownership of the home. If after you pass away the mortgage payments stop, the bank or other financial institution that holds the mortgage is entitled to begin foreclosure on the home.

Additionally, there are some good laws in Idaho that protect both family members and loved ones who receive a home through the distribution from an estate of someone who passed away that has a mortgage on it. In some instances the mortgage documents state that if title to the home passes to anyone else at a time when the mortgage exists, the bank or financial institution has a right to accelerate the loan and require that it be paid off in full. However, Idaho has specific laws that change this. According to Idaho law, no acceleration is acceptable or valid if it is triggered by the death of an individual debtor. As a result, the family members or loved ones who received the home from a decedent will have time to continue making the regular mortgage payments so that a foreclosure doesn’t occur.

Because credit card debt is so common this is the next best area of debt to discuss. Again, this debt belongs to the individual who passed away, unless a spouse or other family member cosigned for the credit card or they received a benefit from the money spent from the credit card. This is especially true when it comes to Idaho’s community property laws.

In Idaho, based on the community property laws, all the property in an estate as well as all the debt in the estate are presumed to be community even if the surviving spouse’s name is not listed on the debt. However, the presumption of community debt can be rebutted by any concrete evidence showing that the surviving spouse receive no benefit from the credit card, and order that the credit card belonged to the deceased spouse before they were married.

Student loan debt is an altogether different beast. Whether or not the estate or the heirs of the decedent are required to pay the student loan debt of the decedent depends on the type of student loan debt that exists. If the student loan debt was based on federal student loans, this debt is forgiven when the person who obtained it passes away. This is true even in community property states such as Idaho.

However, if the student loan debt was obtained through a private lender, and not through the federal government, then this debt continues after the death of the person who obtained it. In this instance, the student loan debt must be paid by the estate of the decedent before any distributions of money, property, or other assets are made to the surviving family members or loved ones of the decedent regardless of whether a written will exists or not.

If you are concerned about your own debts, or if you had a loved one pass away recently with debt, and you have questions or concerns about how that debt is to be handled, we can help.

Our team of Idaho lawyers can help you with any of your estate planning or probate needs. Whether you are seeking to create or review an estate plan for yourself or would like to help a loved one, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a free consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho Estate Planning problems.