Americans Are Dying With an Average of $62K of Debt

What happens to your debt after death? Learn how to keep creditors away from your family in a worst-case scenario.

You’re probably going to die with some debt to your name. Most people do. In fact, 73% of consumers had outstanding debt when they were reported as dead, according to December 2016 data provided to Credit.com by credit bureau Experian. Those consumers carried an average total balance of $61,554, including mortgage debt. Without home loans, the average balance was $12,875.

The data is based on Experian’s FileOne database, which includes 220 million consumers. (There are about 242 million adults in the U.S., according to 2015 estimates from the Census Bureau.) Among the 73% of consumers who had debt when they died, about 68% had credit card balances. The next most common kind of debt was mortgage debt (37%), followed by auto loans (25%), personal loans (12%) and student loans (6%).

These were the average unpaid balances: credit cards, $4,531; auto loans, $17,111; personal loans, $14,793; and student loans, $25,391.

That’s a lot of debt, and it doesn’t just disappear when someone dies.

What Does Happen to Debt After You Die?

For the most part, your debt dies with you, but that doesn’t mean it won’t affect the people you leave behind.

“Debt belongs to the deceased person or that person’s estate,” said Darra L. Rayndon, an estate planning attorney with Clark Hill in Scottsdale, Arizona. If someone has enough assets to cover their debts, the creditors get paid, and beneficiaries receive whatever remains. But if there aren’t enough assets to satisfy debts, creditors lose out (they may get some, but not all, of what they’re owed). Family members do not then become responsible for the debt, as some people worry they might.

That’s the general idea, but things are not always that straightforward. The type of debt you have, where you live and the value of your estate significantly affects the complexity of the situation. (For example, federal student loan debt is eligible for cancellation upon a borrower’s death, but private student loan companies tend not to offer the same benefit. They can go after the borrower’s estate for payment.)

There are lots of ways things can get messy. Say your only asset is a home other people live in. That asset must be used to satisfy debts, whether it’s the mortgage on that home or a lot of credit card debt, meaning the people who live there may have to take over the mortgage, or your family may need to sell the home in order to pay creditors. Accounts with co-signers or co-applicants can also result in the debt falling on someone else’s shoulders. Community property states, where spouses share ownership of property, also handle debts acquired during a marriage a little differently.

“It’s one thing if the beneficiaries are relatives that don’t need your money, but if your beneficiaries are a surviving spouse, minor children — people like that who depend on you for their welfare, then life insurance is a great way to provide additional money in the estate to pay debts,” Rayndon said.

How to Avoid Burdening Your Family

One way to make sure debt doesn’t make a mess of your estate is to stay out of it. You can keep tabs on your debt by reviewing a free snapshot of your credit report on Credit.com, in addition to sticking to a budget that helps you live below your means. You may also want to consider getting life insurance (this explains how to know if you need it) and meeting with an estate planning attorney to make sure everything’s covered in the event of your death. If you’re worried about leaving behind debt after death, here’s more on how protect your loved ones.

Poor planning can leave your loved ones with some significant stress. For example, if you don’t have a will or designate beneficiaries for your assets, the law in your state of residence decides who gets what.

“If you don’t write a will, your state of residence will write one for you should you pass away,” said James M. Matthews, a certified financial planner and managing director of Blueprint, a financial planning firm in Charlotte, North Carolina. “Odds are the state laws and your wishes are different.”

It can also get expensive to have these matters determined by the courts, and administrative costs get paid before creditors and beneficiaries. If you’d like to provide for your loved ones after you die, you won’t want court costs and outstanding debts to eat away at your estate.

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The Lesson We Can All Learn From the Librarian Who Left a Fortune to His Former Employer

estate-planning

A former University of New Hampshire librarian’s $4 million gift to the school has gotten a lot of notice recently because of the way the school chose to use the funds. All the attention serves as a nice reminder that estate planning is important, especially if you’re particular about the way you want your money used.

Robert Morin, who worked at the university’s Dimond Library for almost 50 years, gave his entire estate to the school when he died in 2015. Morin designated that $100,000 go to the library, but he did not specify how the remaining money be spent, according to a statement by UNH.

The school said earlier this month, according to numerous reports, that it plans to spend $2.5 million of the proceeds on a student career center, and another $1 million on a video scoreboard for the school’s football stadium. That final choice upset some folks, who aired their frustration on social media.

The opponents said using 10 times the amount dedicated to the library for a scoreboard goes against Morin’s interests, and particularly his austere lifestyle, which is what allowed him to save up such a large sum of money.

But if Morin had wanted his generous contribution used in a particular way, wouldn’t he have just dictated that in his will or trust, as he did with the amount designated to the library?

Most likely so, which got us thinking about just how much flexibility we all have in dictating our wishes when it comes to leaving money to family, friends and even organizations and charities.

Brad Wiewel, a Credit.com contributor and board-certified Texas estate planning attorney at The Wiewel Law Firm, said a person’s will or living trust can basically dictate anything “that’s not illegal, kind of to use a phrase, unholy.”

“You can put in there pretty much anything you want to,” Wiewel said. “This guy could give it to anything, like a campaign that is anti-smoking, but I don’t know that they would let him say, ‘I want to give this to encourage smoking. That might be against public policy.”

Same holds true for known terrorist groups, hate groups, and so on, Wiewel explained.

Some things you should keep in mind when determining who will receive proceeds from your estate and how much they will receive include:

Stating Specific Amounts

Be careful when stating specific dollar amounts in your will or trust, Wiewel said, especially when combining charities and family as beneficiaries. Your estate can lose value over time, so that $100,000 you want to leave to the Boy Scouts can be great when your estate is valued at $1 million, but if it drops to just $150,000, your family will be left with very little.

That’s why it’s a good idea when leaving part of your estate to a charity or other entity to use a percentage of the estate instead of a specific dollar amount. Along with that, Wiewel recommends a caveat that the amount is not to exceed a certain dollar amount.

That’s not only because stating a particular percentage could hurt other beneficiaries, but a charity, for example, could be required to do an audit of the estate to determine they received the full percentage dictated, which can become costly and time-consuming.

“It’s easier to say, ‘We don’t want to go through an audit, we’re going to give you $100,000 because this is the lesser of; here you go, have a good day,’ ” Wiewel said.

Name Charities as Beneficiaries Instead

Instead of mixing charities and family members in your will, consider making a charity a beneficiary of a retirement account instead. That way, the money will go to them tax-free, Wiewel explained, and, should you wish to change which charity receives your donation, you can simply change the beneficiary on your IRA or 401K account instead of having to rewrite your will.

As with most estate-planning issues, it’s a good idea to seek the counsel of a professional rather than attempting to do it yourself, particularly if you have substantial assets and/or multiple beneficiaries. And as you look at getting your estate in order, it’s also a good idea to ensure your loved ones don’t have to deal with identity thieves who’ve opened credit accounts in your name without your knowledge. You can keep track of these things by regularly checking your credit reports, which you can get for free every year at AnnualCreditReport.com, and by closely watching your credit scores, a drastic change in which can be the first sign that you’ve been a victim of identity theft. You can get your two free credit scores, updated every 14 days, on Credit.com.

Image: Edward Bock

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Prince Died Without a Will, But You Shouldn’t

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When the musician Prince died April 21, he reportedly did not have a will in place, meaning his considerable assets (widely reported to be valued at $300 million) will likely be in limbo for the foreseeable future.

You can avoid a similar situation by deciding now who gets what when you die and putting it in writing so you can save your family a lot of head- and heartache.

“The law of the state where the deceased was living at the time of their death generally determines who inherits their tangible personal property when there is no will (or living trust),” Brad Wiewel, a Board Certified Texas estate-planning attorney, has written for Credit.com. “In most states, if the deceased was married, a portion of the tangible personal property will automatically go to the surviving spouse. This is generally true for an intact family.”

But that wasn’t the case for Prince, whose living relatives include his sister, Tyka Nelson, and five half-siblings. Those family members have been named as “interested parties” in court documents filed by Prince’s sister, who’s seeking a special administrator to manage her brother’s estate.

“Unfortunately … in blended families, the law usually references a percentage or faction, such as one-third or one-half, and determining exactly what that fraction is can, of course, be a problem. Is it one-third of the couch? One-half of the jewelry and if so, which half? As you can see, the problems can be considerable,” Wiewel wrote.

The best way to avoid these familial hassles and ensure your loved ones not only get the things you’d like them to have but also don’t have to deal with turmoil on top of their grief is to have a will in place, regardless of your age or family situation.

Wiewel advises that the best option for dealing with your tangible personal property is to prepare a will or a living trust that includes a specific heirloom list and a formula for distributing things that are not on that list so that your wishes will be legally enforceable. Family harmony after a death is fragile; making your wishes crystal clear will help keep emotions under control.

Here is a simple guide to estate and inheritance planning. You can also find tips here to ensure your debt after death doesn’t hurt your loved ones. And be sure to get your free annual credit reports every year so you can make sure there are no surprises on yours that might impact your family after your death. You can also get a free credit report summary every month on Credit.com to see where you stand.

More on Credit Reports & Credit Scores:

Image: BartekSzewcyk

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The Importance of Having a Will and Talking About It with Your Loved Ones

Finances

There are a few important steps in building your financial foundation that aren’t much fun to talk about.

Writing a will is right at the top of that list.

It’s obviously a morbid topic, and it’s also a step that can force you to have some difficult conversations with family members. No one likes thinking about what would happen if they die.

But it’s important precisely because it’s such a tough topic. If you don’t handle it now, all of those difficult and confusing decisions are going to be left up to other people. That could not only result in outcomes you wouldn’t want, but it may cause your family members a lot of stress and conflict.

So in this post we’ll talk about why you want a will, even if you don’t have a lot of money, how to get it handled, and how to have some of those difficult conversations with your loved ones.

The Benefits of Having a Will

The popular perception of a will is that it allows you to determine who gets all of your money and possessions when you die.

And while that is a part of what it’s for, there are other benefits to having a will that have nothing to do with money. That’s especially true if you have children.

Here are four major reasons you want to have a will in place.

1. Naming Guardians

For parents, the biggest reason to create a will is to name guardians for your children if you pass away. You can name primary, secondary, and even tertiary guardians just to make sure that you have all your bases covered.

Without a will, this decision would be made by the courts. Better to take it into your own hands to make sure that your children are always in the best situation possible.

2. Naming Custodians

A will also allows you to name custodians for your children. These are the people who would be in charge of whatever money is left to your children up until they reach adulthood (typically age 18 or 21).

The custodians are often the same as the guardians, but they don’t have to be. In any case, this is another important decision that you’ll want to be in charge of just to make sure that your children’s best interests are considered.

3. Passing Property

Of course, a will also allows you to decide who gets things like money within your savings and investment accounts, your house, and any other personal possessions you’ll be passing along.

4. Keeping the Peace

Without a will in place, all of these decisions would be left to your surviving family members. That’s not only a lot of work to put on their shoulders, but it could be the cause of fighting if people aren’t in 100% agreement about what should happen.

Talking to your family about these decisions ahead of time and being very specific in your will makes the process much easier for everyone when the time comes.

How to Get a Will in Place

There a couple of different ways you can create your will.

One option is to find an estate planning attorney in your area who can walk you through the entire process and get everything in place. Most attorneys will likely charge a couple of hundred dollars for this, though you may be able to get a discount through your employee benefits program.

There are two big reasons to consider using an attorney:

  1. If your situation is relatively complicated, such as having significant savings and investments, owning businesses, owning multiple houses, or having gone through a divorce, a lawyer can make sure that all of that is accounted for correctly.
  2. A good attorney will not only understand the law, but will take the time to ask about your personal situation and goals, clearly explain all of your options, and help you make the best decisions possible. That kind of guidance and the peace of mind it provides can be worth paying for.

The alternative is to use one of many DIY tools out there, like Nolo, LegalZoom , and Rocket Lawyer. This is the less expensive option, and it may be a good choice if:

  • Your needs are very basic, or
  • You’ll be moving to a new state in the near future, meaning you’ll need to get a new will done soon anyways. In that case it may make sense to get it done inexpensively now and pay for an attorney once you’re in the new state.

How to Talk About a Will with Your Loved Ones

Creating a will can bring up some tough conversations with your family members.

If you’re creating your own will, you may have to talk to a spouse about who you would want caring for your children, and there may be some disagreement there. You’ll also have to ask the people you want to be guardians whether they’re willing to do it, and you may run the risk of hurting feelings by not choosing people who would like to be in that position.

But it’s not just your will you need to consider. Many adult children are put into tough situations when their parents either never created a will, never updated it to reflect their changing circumstances over time, or simply never talked about their wishes with their family. That could leave you with the significant responsibility of figuring it all out after the fact, and it could also put you in the tough position of negotiating or arguing with your other family members about what should b done.

So it’s a good idea to talk to your parents about their wills too, just so the entire family can get on the same page and have a plan in place.

Here are some things to keep in mind when you have any of these conversations, to make sure they’re as positive and productive as possible:

  • Many people are uncomfortable talking about this subject, for a variety of different reasons. It may take several tries before you’re able to have a meaningful conversation, so expect that going in and be patient.
  • Start by asking the other person what they want, rather than talking about what you There’s plenty of time for you to have your say, and in the meantime you can make sure they have the chance to be heard.
  • When writing your own will, keep the feelings of your family members in mind but make sure to put the interests of your spouse and/or children first. Putting them in the best position possible is the top priority.
  • When talking to your parents about their wills, make sure to get all siblings and other family members involved. Otherwise there could be fights later on because someone feels like decisions were made behind their back.
  • Be willing to compromise, especially when it comes to who gets money and/or possessions. These are difficult decisions and it’s better to stay on good terms with the people you love than to get everything you think you’re entitled to.

Creating a will isn’t an easy topic, but it’s an important one for you to address head on both for yourself and with your parents. You will be much better off for having the conversations and for getting things in place.

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