By Nance Ebert, Contributing Writer
REGION – When people think about planning for their eventual demise, the focus is usually on assets. But what about debt? Most debts have to be paid off through your estate. The designated executor’s responsibility is to settle your estate, which includes the debts of the deceased. There are, however, some exceptions where debts are forgiven. In the state of Massachusetts, some student loans, both private and federal, are examples of that. If there are no assets or an estate, the debt ceases to exist once the debtor dies.
How it works
“In Massachusetts, as a creditor, you have one year from the date of death to bring a claim against the estate and the claim has to be a lawsuit,” said Northborough attorney George E. Pember. “Merely filing a notice of claim in the Registry of Probate is no longer sufficient. If there are not enough probate assets to pay the claim, the creditor can only expect to get a partial payment,” he explained. “It is also typical to have bureau expenses and legal fees in settling the estate be given priority over other claims.”
Keeping good records of debts and assets is extremely helpful for those given the task of helping to settle your estate. The executor will have a much easier task.
According to a study by Experian, one of the three largest credit bureaus in the United States, “The average American dies owning $61,554. Throw mortgages out of that equation and the debt load shrinks to $12,875, which doesn’t seem like much unless some debt collector starts calling you day and night trying to collect.”
People accrue all types of debt during the course of their lifetime. Some might include business, life insurance policy loans, car loans, medical bills, credit card loans, student loans, mortgages and more.
Once the debts are paid off by the estate, whatever assets are left becomes an inheritance. If there are not enough probate assets to pay the claim, the creditor can only expect to get partial payment.
Debt does not transfer to surviving spouse
Because Massachusetts is not a community property state, when a married resident of the state dies, their spouse does not owe their debts. These debts become the responsibility of the deceased’s estate.
“It is also important to note that assets of a surviving spouse and/or children are not used to pay the debts of the deceased personally,” Pember added. “Assets that were jointly owned are presumed to be owned by the surviving joint owner and therefore also not available as claims against the estate because they are not assets that go through the probate court.”
As difficult as it is, it is important to plan for what will happen after our passing. Meeting with an attorney who specializes in elder law and estate planning can give you some peace of mind in knowing what will happen to any debts you may have when you are no longer around to make these decisions. This also helps ease the burden on your family and loved ones who are left with the task of handling your estate.
Surprenant & Beneski P.C. encourages early estate planning (fiftyplusadvocate.com)
Should you buy long-term care insurance? (fiftyplusadvocate.com)
When to start collecting Social Security – an important retirement decision (fiftyplusadvocate.com)