Are heirs on the hook for debts after your death?

If you are in debt when you pass away, one of the things that might happen is that those creditors could go after your estate for the money that they’re owed. A good estate plan will take steps to make sure that your heirs are protected against these creditors staking assets from the estate that should have, under different circumstances, gone to them.

According to one study, around 73% of Americans will die in some kind of debt. That being said, your heirs are not going to be personally responsible for those debts after you die in most cases. The estate could be, though, which is why you will want to consider options such as setting up irrevocable trusts to protect your heir’s inheritances.

Your money is protected, but only sometimes

After your death, certain assets are protected. Your life insurance policy or 401(k) retirement plan, for example, may not be at risk. However, if you didn’t establish beneficiaries for those policies, there is a risk that they could pay into the estate. If that happens, then you are more likely to be held responsible for those debts. Your estate would need to pay them before passing on remaining assets to any potential heirs.

Shared balances will come into question

One of the exceptions to heirs not being responsible for their loved ones’ debts is if they have co-signed on loans or credit cards. Joint applications mean that both parties are responsible for the debt. Even if a family member sharing that credit line or loan passes away, the other will be held responsible for paying it back.

That’s not to say that authorized users will necessarily have to repay debts. Joint account holders are usually treated differently than authorized users, who may or may not need to pay.

You need to take steps to protect your assets from creditors following your death

Debt can be a tough topic. Plan for your debts now, so that you know that your heirs and beneficiaries will be protected if you pass away suddenly. Taking steps to protect your assets may make them less accessible to creditors.