Creditors and Your Estate Plan

I’m worried about my creditors and what will happen to my estate and my family after I’ve passed away. What happens with my mortgage? What happens with my student loans? What happens with my other debts?

I’m Sarah Siedentopf. I’m an estate planning attorney in Atlanta, Georgia, and that’s what we’re gonna discuss. What happens with debts after you pass away.

And the first thing to know is that other than the exceptions, debts are debts of the estate. They’re not debts of your spouse, or your children, or your other family members. That does mean that things that are going through probate, we’re paying off creditors before, you know, any beneficiaries are getting assets from your estate.

So, this is still gonna come out of, you know, the pot that would otherwise go to them, but they are not personally required to pay these loans, or debts, or creditors unless something else is added to that. And now that something else might be, you know, if I co-signed on something, it might not just be your estate’s debt, it might also be my personal debt or a mortgage. It’s not my debt, but if I don’t pay it, there is a lien on the property. The property is going to be, you know, sold and foreclosed upon.

Any other debts that are associated with liens and they maintain those liens on the property. So you can transfer, you can gift the house in your will, the mortgage is gonna come with it unless you’ve, you know, made arrangements for the mortgage to be paid off. But generally speaking, your spouse doesn’t have an obligation to pay them,  your children don’t have obligations to pay them. And creditors who know this still will do their very best to make it sound as if there is an obligation, whether legal or just, you know, moral to pay these debts on your behalf. Student loans, federal loans, do get forgiven when someone passes away.

Private loans, you unfortunately, have to read the documents. A lot of them do in fact get forgiven, but some of them do not. In which case they are again, creditors of the estate. Unless someone else co-signed on something, it’s, you know, not a personal debt of anyone else. If there’s not enough money in the estate to pay them, they don’t get paid so sad, but nobody else should be coming out of their own pocket for that. If you are on the receiving end of, you know, calls from creditors about a debt that you know is not yours, it’s a debt of the estate and perhaps there is maybe not even an estate open, you can tell them to stop calling you.

So, you don’t have to just allow them to keep contacting you. But maybe we’re on the back end and you know, there were some debts and we’re wondering is there anything we can do. So, or possibly I’ll start with one sort of pre-planning thing is, if you have a piece of property, say the house, that is owned jointly with right of survivorship, that right of survivorship means that the house transfers in full to the other owner automatically by operation of law when you pass away.

So it’s not in an estate anywhere for creditors to make claims against. It’s already onto the next owner. This is most often appropriate with spouses. I get very nervous when people think about outright gifting, you know, their house to their children during lifetime, because, you know, joint ownership with right of survivorship is an outright gift of a partial ownership during your lifetime. It’s not something that you can change your mind about and take back, but that is something that can be done in a planning aspect ahead of time. On the backend, Georgia has something called petition for year’s support. The surviving spouse and any minor children are entitled to assets to enable them to live for a year. This is above creditors. So, the idea being that we don’t want people, you know, kicked out on the street. We would rather make sure that, you know, surviving spouse and children have assets