When engaging in estate planning, special consideration should be given to what will happen to your debts when you die. If you are married, you could potentially put your spouse in a negative situation in regards to your debt when you die. In some cases, however, your spouse may not have to pay all the debt you left behind.
Joint vs. Individual Accounts
When a spouse dies, the matter of whether the surviving spouse will have to pay his debt revolves around the type of account held. If the deceased individual held the account in only his name, then the surviving spouse will not have to repay the debt. If the account was held jointly in both spouses' names, the surviving spouse will be responsible for the debt. This is true even if the surviving spouse did not know about the charges that the other spouse made.
Real Estate
When you and a spouse own real estate together, the mortgage debt will typically have to be paid by the remaining spouse. In most cases, the remaining spouse will still live in the house for some time after the other spouse dies. Most spouses own the property together and both names are on the title. The mortgage debt remains even if the sole income earner is the one who passed away. In some cases, the surviving spouse must sell the house to pay the mortgage debt.
Probate Process
Even though you specifically may not have to pay them, your deceased spouse's debts may have to be paid out of the her estate. Before the deceased spouse can pass on any assets to her beneficiaries, her creditors have to be paid. The creditors can file a claim against the estate, and then the probate court will see to it that they are paid. If there are not enough funds to pay the debts, assets may have to be sold to come up with the money.
Solving the Problem
If you feel like you might have to leave some debt behind for your spouse when you die, you can take some precautions to handle the situation. One of the best way to handle this problem is to buy a term life insurance policy. Do some calculations to figure how long it would take you to pay off the debt. Then buy a term life insurance policy that lasts at least that long. If you die before the term policy expires, it will pay your spouse a cash benefit, which can be used to pay off the debt.
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