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What kind of debt doesn’t die with you?

More and more people are dying with debt. While you may make concentrated efforts to pay off all of your debt before you die, sometimes that is not an option.

As you create your estate plan, it is essential to have a clear understanding of your debts and how they could impact your estate's beneficiaries. In some cases, creditors can take a sizable portion of your estate, leaving significantly less for your heirs.

This is what you should keep in mind about factoring your debt into your estate plan.

Co-signer vs. authorized user vs. joint account holder

In many cases, when you die, your debt does as well. There are, however, some instances where you must pay your debts with the assets from your estate.

Whether you need to plan your will around your debts depends largely on what type of debt(s) or account(s) you have, such as:

  • Co-signed account. The co-signer will be responsible for the debt.
  • Authorized user. An authorized user is someone who is permitted to spend, using your account, but who is not responsible for the debt.
  • Joint account holder. In most cases, someone who shares a credit account with you as a joint account holder is responsible for the debt.
  • Community property spouse. In community property states, like Nevada, a surviving spouse may be responsible for debts incurred during the marriage.

As you create your estate plan, it is essential to know what types of accounts you have. During your estate planning process, talk to your creditors about what kind of account you have and what other individuals have spending privileges.

Student loans

Education debt is becoming more common and taking longer to pay off. A loan that used to take 10 years to pay off is now taking decades.

In many cases, student loan debt dies with the student. However, it is critical to understand what types of loans you have and who might be listed as a co-signer on your account. If the account has a co-signer, that person will likely be responsible for whatever debt remains.

Keep in mind that if you took on your education debt while you were married, your spouse might be responsible for the remaining balance on those loans.

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