“When I die, do my kids have to pay my debt?” is a question that we often hear.
Let’s clear up some of the confusion.
You’d be correct in thinking that when someone in Georgia dies, their debts don’t just go away. However, they also aren’t automatically transferred to your children. Instead, the estates becomes responsible for settling the debts. This means the executor would gather all of the assets and notify the creditors of their recent passing. From there, valid debts are paid off using estate funds before distributing anything to their heirs.
Here are some of the debts that must be paid, if possible:
- Credit Cards
- Medical Bills
- Personal Loans
- Final Utility Bills
Here are some of the debts that usually die when the individual passes:
- Federal student loans
- Some private student loans
And finally, here’s what creditors can’t do to the heirs:
- Collect from their personal assets
- Force anyone else to pay unless they co-sign the debt or are legally responsible for it (i.e., jointly owned credit cards)
You may now be wondering, “Well what happens if there isn’t enough to pay it all? Will there be anything left over for the heirs?” If the estate doesn’t have enough money to pay the creditors, it is called an insolvent estate. Here is the order in which creditors and expenses are paid out of the estate:
- Funeral expenses
- Administrative costs (i.e., attorney fees & court fees)
- Taxes
- Secured debts (think of a mortgage or a car loan)
- Unsecured debts (think of a credit card)
Ultimately, whatever cannot be paid, just does not get paid. Heirs don’t inherit the debt.
In order to protect your family, it’s important to keep beneficiary designations updated, avoid co-signing debt unless it’s necessary, consider life insurance to cover final expenses and use trusts or transfer-on-death tools to keep assets out of probate, where they might be claimed.
It’s important not to assume that just because you’re gone, your debt is too.
If you need any help, give us a call at (404) 409-5665.
