If you’ve followed our blog for any length of time, you know that we stress proper estate planning, including financial planning. One of the biggest quagmires families face after the death of a loved one is who pays the remaining bills. Who covers the Visa balance? Is anyone responsible? There are a few important distinctions that if you don’t know, could present big problems for you personally. Let’s take a look at the role of heirs and credit card debt, along with other unpaid debts after death.
Let’s address the most obvious first: there is no obligation for any heir to pay credit card bills if a loved one’s estate did not have the funds needed to cover it. As with most things, though, there are a few caveats and a few more things you’ll want to keep in mind.
If there is no will, there’s no obligation in paying off those debts. Of course, if you feel obligated, you should certainly do so. It’s the right thing to do. You may have trouble getting the credit card company or bank to open up to you, though. Remember, privacy laws go to great lengths to protect a person’s identity, including financial information. Those same laws can cause some collectors to push it to the limit though and will often use guilt to convince someone to pay up – that’s if you can talk them into discussing it with you. You should have some bargaining leeway, though, because creditors know that you’re not obligated to cover another person’s debts.
If there’s a will involved, there is a fiduciary obligation to pay off the debts in the estate, including credit card debts. The one you’ve selected to handle your financial affairs is legally bound to cover those debts before ever beginning to divide what’s left of the assets. It’s human nature that we wouldn’t want to give part of our inheritance to pay down the debts, but it’s the legal requirement so you’ll need to select a person who will not be tempted to bypass those debts. It could mean problems for them.
Be sure to disclose to your estate planning lawyer all of your creditors, including account numbers, phone numbers if you know them and the balance (even though it will surely change). This allows your financial power of attorney to not only make contact, but to take appropriate steps to close the account and destroy any credit cards. If they don’t know it exists, they don’t know to close the credit card account.
If you’ve been named in a deceased loved one’s financial power of attorney, remember that your goal is to honor your loved one and the best way to do that is to see through your responsibilities. Keep up with all of the payments you make and keep accurate records since you may be asked to prove you made the payments. While heirs and credit card debt aren’t a match made in heaven, a bit organization can go a long way.
Finally, don’t forget to negotiate. Typically, a creditor will take a reduced amount as payment in full, especially considering they don’t have a lot of options if there’s no will in place.