Your personal wealth includes all of your property and assets, while your financial obligations or liabilities include your debt and recurring bills. Many people put a lot of consideration into what happens to their property when they die but very little thought about what will happen with their debts.
If you understand what happens to your debts when you die, you may feel more motivated to address them in your estate plan.
Your debts pass to other borrowers or your estate
Sometimes, there is a co-borrower or a cosigner for an account. When you die, they will become solely responsible for those financial accounts unless your estate helps pay the balance due. Debts held solely in your name become the responsibility of your estate.
Credit card balances and even hospital bills from your treatment prior to death will require payment from your estate assets. If you don’t set aside resources to pay off your debts and plan ahead for end-of-life medical care, you may not leave any significant financial legacy for others when you die.
There are multiple ways to address your debts
You can take out life insurance or other insurance instruments that will cover your debts at the time of your death. You could also move some of your property into a trust so that creditors can’t make a claim against that property when you die. The right solution depends on your estate planning goals and your current financial circumstances.
Adding plans for your personal debt to your estate plan will better protect the people you love when something happens to you.