I am frequently given the opportunity to help clients deal with the financial aspect of losing a loved one. The death of a loved one can be devastating at the very least, and the last thing survivors want to think about at this time is finances, especially debt. The financial position of the deceased, however, must be addressed in order to determine the net worth of the estate. Although the laws differ with each state, the process of determining who will pay off credit card debt after a death is generally the same.
Initially, any affected survivors should consider whether the deceased was the sole debtor on the credit card debt at the time of his or her death. If there were cosigners or joint owners listed on the credit card accounts at the time of death, those people will be responsible for paying the remaining balances of any credit card obligations. Otherwise, the debts of the deceased are left to the estate. It is also important to remember that personal life insurance policies are not affected by the debts of the estate and are to be paid directly to the beneficiaries of the insurance policy itself.
Once it has been decided which debts were owned solely by the deceased, survivors should investigate any insurance policies that might have been taken out on each credit obligation. By contacting the creditors directly, it can be established whether each particular card was covered by an insurance policy that will pay off the debt in the event of death. It is a good idea to have copies of the death certificate available to those creditors who require it.
The executors of the estate should then contact any remaining creditors, as well as the three major credit bureaus, and notify them of the loved one's death. Creditors are then allowed a certain period of time to make their claims for any remaining balances that are to be paid from the estate. In addition to speeding up the time of estate processing, prompt notification to the creditors and credit bureaus can also protect the deceased from any future debts that could be incurred under his or her name.
Although the beneficiaries of an estate are not generally responsible for the credit card debt of the deceased, they can still feel the burden of any non-insured debt since all credit obligations are paid from the estate before any distributions are made to the beneficiaries. In the event that the estate does not have a net worth that will cover the entire debt, the remaining debts are simply absorbed as losses to the creditors.
The process of determining who is responsible for the debts incurred by a loved one who has passed away can vary significantly in community property states, however. In community property states like California, all property and debt that is incurred after marriage becomes community property, and is therefore owned by both spouses even if only one spouse's name appeared on the account. In this situation, a surviving spouse may in fact be responsible for the credit card debt incurred by the deceased. It's a good idea to consider contacting an attorney for advice regarding specific laws that may affect your situation.
-- Paul Anderson is an investment advisor and partner at Moneywise Wealth Management. He is also a host of the Moneywise Guys radio program on KERN 1180 weekdays 10 a.m. to noon. His email is Paul@moneywiseguys.com and website is www.MoneywiseGuys.com. Advisory Services offered through : SCF Investment Advisors, Inc. Corporate Office: 155 E. Shaw Ave. #102 Fresno, CA. 93710 800-955-2517. These are Anderson's opinions, not necessarily those of The Californian or SCF.