When people think about estate planning, the conversation often centres around the fate of property and assets. But, what happens to someone’s debt when they pass away?
The answer depends on the type of debt held, but the good news for beneficiaries is that they will not be responsible for debt personally unless their name is on the loan. Although this is a great reassurance, it is still important to make sure that an estate is organized in such a way that the impact of debt is a minimal as possible to beneficiaries.
Here are some steps families can take to ensure beneficiaries are not left with any debt from passed away loved ones:
- Avoid co-signings and joint debt: If a person passes away and is the only one who held a debt, then the estate will be responsible to pay the debt. However, if they have a co-signer who survives them, they will be required to take on the debt themselves. If co-signing is necessary, getting insurance to cover the debt in case of death is probably wise.
- Be careful about supplementary credit cards: It is not uncommon for people to add loved ones to a credit card account and give them a supplementary card. But, it’s wise to think twice before taking a supplementary card, as amounts owed by the primary cardholder have been known to impact supplementary holders’ credit scores.
- Discuss the future: As with any estate planning situation, communication is almost always the best way forward when it comes to preventing issues. Any joint debt or other seemingly risky issue should be discussed between implicated parties to make a plan.
The advice to communicate and consider all possible pitfalls is important in any estate planning venture. However, it is critical to ensure that solutions identified will truly work and can be properly documented in accordance with British Columbia estate law. Including an estate planning lawyer in these conversations is a great way to make sure things follow through according to your plans.