Credit & Debt

Can My Heirs Inherit My Debt?

When you’ve lived a fruitful and productive life, passing on a legacy to your loved ones is the most beautiful way for you to be remembered.

The last thing you’ll want to do is pass on lots of debt.

It’s sad but true that some people who have racked up personal loan debt end up leaving this burden to loved ones – adding a serious blow to an already difficult time.

In this article, we’re talking about loan debt, and we’re making you conscious of debt implications while you’re still here to do something about it.

Know Which Personal Debt Affects Your Heirs

Not all debt is passed along to loved ones, so it’s critical that you figure out which debt your family members might be on the hook for.

Let’s take a look at some of the most common forms of debt that can be passed on to your estate.

Consumer Debt

According to studies, the average consumer dishes out about 75 percent of their take home pay to companies they owe money to. Short term loans make up a good deal of this consumer debt.

When you have a personal loan at the time of your death, your husband or wife could be responsible for the debt. The rest of your family typically has nothing to worry about.

Car Loans

If you have a car that you’re making payments on, the note could very well be passed on as loan debt.

The first person the bank will turn to is the co-signer if one is attached to the loan. He or she will be held accountable for the remainder of the loan as if they were the ones who received it.

And, depending on where you live, a spouse might be responsible for the car loan debt, even if they’re not a co-signer.

Be sure to research the marriage and estate laws in your locality to see if you live in a “community property” state or province.

Specific Borrowings

Student loans and mortgages are huge sums of debt that need to be considered as well.

If you’ve taken out a Federal loan, your estate can have it canceled by presenting a death certificate. If you’ve taken out private loans, the estate will generally have to pool together to pay off the remaining balance.

In terms of your mortgage, your husband or wife must keep up with the note, or sell the property. However, keep in mind that lenders are understanding with these situations, and can work out payment plans or grace periods.

Take Action To Protect Loved Ones From Your Loan Debt

Now that you know a bit more about what debt can and can’t be passed on to your family, it’s up to you to make some solid decisions.

Here are some specific steps to take to protect your loved ones.

Step One

Create an open and honest dialogue with your family members as you create your will.

Let them know your debt to credit situation so that no one is caught off guard in the event that you die before your time.

Step Two

Assess your family members and find an estate executor that you trust.

Since this is the family member responsible for divvying assets and making crucial decisions, they need to be honest and fiscally responsible. Ask them up front if they will serve as the executor, then treat them as the point person as you get your affairs in order.

Step Three

An ironclad life insurance plan can make all the difference in the world when it comes to your debt.

You can tailor your policy so that your loved ones are not responsible for it. Make sure that you also put together a life insurance plan that handles burial or cremation, estate taxes and loss of income.

Step Four

Most importantly, decide to take care of your debt now.

Resolve to live the rest of your life debt free, so that your days are filled with abundance, as opposed to unbearable dread.

Not only will this give you some financial breathing room, you also won’t worry about passing this debt on to your estate.

What Your Heirs Can Do If They Inherit Debt

If you die with debt that is passed on, teamwork is key.

First off, keeping the family close is critical.

As sad as it sounds, families often squabble about money when someone dies.

When a family is on the same page, it’s far easier to hash out tough discussions over debt and money.

Treating the family like a business is also crucial.

It’s a good idea to set up an organization within the family, bringing siblings, parents, cousins, aunts and uncles together to meet once per month. Make sure that every family member pays dues, and that you all vote on the secretary, treasurer, and other important positions.

Open a bank account for the family where club money is stored.

This way, the family can vote on fiscal emergencies as a unit and tackle debt that you might have at the time of your death.


As you can see, it’s absolutely crucial to develop a plan to make sure your family doesn’t inherit your debt. And, that plan needs to be put in place as soon as possible.

After all, you want your legacy to be lasting.

You want to leave your family members with beautiful memories, not substantial loan debt.

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