If you're in the will, are you liable for the financial debt of the deceased?
If someone dies and leaves behind a significant amount of debt, I understand the people who the money is owed to have a certain claim on the property of the deceased in order to collect on what is owed to them.
If someone dies and owes more than what their estate is worth, but names people to inherit their property in their will, are the inheritors liable to pay off the debt of the deceased? Conversely, if the deceased leave a mountain of debt, are their children liable for the debt if they are not in the will?
I am not a lawyer, nor do I play one on tv, and I'm not sure if this varies by state, but from my experience of closing out estates, the estate needs to pay the debts first before any payout to those named in the will, but those in the will do not have to pay out of pocket for debt. So just because you are in the will it does not mean you will get anything. And unless the children's name are on the debt (ex: joint credit cards), they should not have to pay either.
It's my understanding that unless you are a part of the debt (name on the loan, co-signer, credit card, etc) then you are not responsible. Otherwise how many people would "leave" things to those they didn't care for as a final Haha! You can name anyone in a will, without their permission, so it wouldn't be right to hold them accountable for someone else's actions and debts. I can't imagine naming a charity like Red Cross and then expecting them to pay off my house when I die.
I sell insurance, and one of the important things I tell people is that you need a whole life policy. If you have one, the money from your policy will go straight to your beneficiaries, not your estate. So you don't have to worry about estate laws, probate laws or government taxes in most cases. If you want to leave something behind for your family, buy a whole life policy. Term is cheap, but really not practical except for certain situations.
Disclaimer: I'm only licensed in the state of Mississippi. Insurance laws could very well be different in your home state. I recommend discussing this issue with a licensed insurance agent in your own town. I am in no way trying to solicit sales here, just offering my opinion based on my personal viewpoint. Yes, I hate pushy insurance salespeople as much as you do.
@purplefeather: I have a POD (Pay on Death) name on all my deposit accounts. If I die, these accounts immediately belong to the POD person and does not get stuck in probate.
There is one catch. If I die with debt, those debts still need to be satisfied. So the beneficiary of my POD accounts may still need to use some of that money to pay that debt if the value of the estate does not cover it by itself.
I just went through this recently with my ex. His family was out of state and were going to decline executorship in favor of me doing it on behalf of my son. Due to medical bills, he was in terrible debt and the debts exceeded the estate.
What I was told by my lawyer was that each claimant against the estate would have to be paid a percentage of the estate based on very strict formulas based on how much they were owed, how long, etc. This would be done until the estate was exhausted. HOWEVER, if one of the claimants decided I screwed up their portion, they could sue me PERSONALLY for what they felt like they were owed. I would then start incurring legal fees.
We decided that it was best for my son (and me) to walk away from the estate. We declared it insolvent and did not probate the will. You do not have to probate the estate.
My lawyer wrote letters to the main creditors (house, car, loans) to notify them of his death and sent a death cert. That kept my name out of it so I was not associated with the estate.
The car was repossessed. The house is in limbo at this time. I watch the monthly courthouse auctions to see if it comes up but it hasn't so far. It's been 9 months. The liens against the house have been cleared. Online public records are wonderful.
So basically, the estate will cover its own expenses where possible. However, the executor can be held liable if it is not done correctly.
Skip whole life, go with term. A lot cheaper than whole life, and whole life is a poor investment.
@figgers3036: Not really. Term expires. After that happens, you either have to renew at a higher rate, or just accept that everything you've paid into it is gone forever and you won't ever get anything out of it. Term is great if you have things that you want to protect for a set amount of time (mortgage protection, income replacement before retirement, ect.) but should not be your only insurance coverage. After you turn 65, most term policies are no longer renewable. This isn't an issue if you don't plan on living past 65, but most people I know would like to keep going a bit longer.
Whole life is more expensive, I said that from the get-go, but like the name implies, that policy will be there your WHOLE life. If you're one of the lucky ones and live to be 100, then your policy matures and you get a cash payout for the full value of the policy. That may be the original face amount and a bit of interest as well, since whole life bulids cash value.
Whole life is pretty affordable so long as you don't wait until you're in your 40s to take out a policy. My daughter gets $35k of whole life coverage for about $15 a month. Plus she's got a rider on there that allows her to take out as much as $150k more when she gets older without having to prove medically that she's even insurable anymore.
If I needed to insure that my family would have $200k available to them if I died in the next ten years, I'd get term. If I wanted to make sure that they were able to bury me and have a bit left over for whatever when I die when I'm 95, I'd go whole life.
Whole life also builds cash value, and you can use it as collateral for loans. How is that not a better investment than term?
@purplefeather: Sorry but whole life's return is terrible. I used to sell stocks, bonds, and insurance products so I know how it's structured, how they're paid out etc.
Best way is term and invest the diff. If you have to combine your insurance with an investment, then a VUL give you term + tax def mutual funds.
$50k term for a woman in her 30s is $9-17.
She who dies in the most debt wins. (LOL)
I don't have any kids or a spouse, so my stuff is my stuff. I have nephlings (nephews and nieces) that could profit from my estate and it's fine if they do, but I am not buying insurance and worrying about estate planning as I have no direct beneficiaries to look after. I am planning for a comfortable retirement and then out.
@moondrake: if you die without a will, you're leaving those left behind more headaches than you know.
Just by being in the will, no. But if you're the executor of the estate, then I believe you have to deal with it. But you do get to use any life insurance to help cover any debt left behind
@thunderthighs: My only real asset is my house, and I named my mom as the beneficiary in the mortgage insurance. My mom is named for my life insurance through work. I'll be retiring very soon so my pension will be utilized and AFAIK has no post-death value. All else that would be left is the car, a savings account equaling the house taxes for a year, and my personal possessions, none of which have any great value. My mom is starting to show real signs of Alzheimer's, so I need to change that. But there's no good solution as my brother and sister cannot stand one another and my nephlings are too young for the job. I'm retiring in 2.5 years which is going to eliminate my work policy, activate my pension, and will pay off my mortgage at about that same time. I'll probably make up a will assigning my best friend as my executor after that, with specific assignments of things of real value. My actual dependents have fur, and I want my few assets to assure their care.
What you own stands for what you owe. Your possessitions will be sold and split amongst your creditors unless there is enough money laying around to cover those expenses. Insurance is not an asset it has no bearing on your personal net worth. Insurance is a contract to pay your benifeciaries in the event of your untimely death (this is why term life insurance 10x your income is usualy sufficient, it gives you time to build a nest egg and the peace of mind if you die tomorrow your income can be replaced by the intrest on the sum the life insurance provides). Insurance is not used to pay your debt nor is it probateable because it was never your money. Unless a family member wants to keep your possessetions and uses the insurance procedes to pay the debt off. the items securing the debt stand in place of payment and the debt is non-transferable.
@purplefeather: "Whole life also builds cash value, and you can use it as collateral for loans."
The same can be said of term, it's just lower commission. Period.
As far as term expiring, be honest. Once it's paid up, there are several options, including paying an annual maintenance fee which, along with the accrued interest, will keep it in force. When my mom passed, I'd kept hers in force for 12 years past its' maturity date.
And you claim to dislike pushy insurance salesmen...
My grandfather was in a terrible car accident where a small child died. He was blamed for the accidental death and then sued for more than the insurance would pay. He Went to live with my uncle and unknown to anyone else, my uncle never resolved the debt and ignored the letters saying payment was due. After my granddad passed away, the debt had been accumulating late penalties and interest for another couple of years before anyone realized it had not been paid. My mother and her siblings were forced to sell his house at auction to cover the debt and they ended up with nothing. I know that it's different being it wasn't an unsecured debt but it really screwed them out of ending up with any inheritance.
@havocsback: http://www.smartmoney.com/plan/insurance/term-or-whole-life-8011/ This supports both our points. I'm not really sure about what you're trying to imply about me, I'm not trying to sell anything, pushy or not. Like I said, I'm only licensed to sell in Mississippi, so it would be illegal for me to offer anything to anyone outside the state, and please note that I never asked anyone to contact me or any particular company about buying, I just tried to give my opinion about something I know a little about. No money being made here.
That being said, would I suggest life insurance as your only investment? Nope. Would I recommend a $100k whole life policy when you've invested in stocks and have twice that much safely tucked away in the bank? Nope. Because you don't need it in that scenario.
Is life insurance a way to leave something behind without worrying about probates or estate laws? Yes. That's why I mentioned it. If you don't agree, that's fine.
offtopic, I know, but RUN AWAY FROM ANY SALES PERSON TRYING TO SELL YOU WHOLE LIFE INSURANCE! In my opinion, anybody selling whole life insurance is either ignorant or a scammer who doesn't have the customer's best interests at heart
Even if it is one of the very few policies that charge low commissions, whole life insurance offers NO tax protection. The same amount of money paying for term life and the rest in a simple IRA or ROTH IRA is a bazillion times better. Whole life is a scam.
First off, there is too little information here to answer fully. Someone would need to look into any trusts established , who was responsible for accruing the debt, etc. There are so many state and federal laws that it is best to contact a licensed estate attorney to look over everything relevant to the entire estate.
Thought some companies and agencies (IRS) will try to collect from descendants, it's not legal. You cannot be held responsible for the debts occurred by others. They can collect from the estate, including property - up to the value of the estate.
(I'm not a lawyer. Don't play one on TV either. Please, seek your own legal counsel.)
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