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Be Careful of Credit Card Debt at Death

What happens to all of the money that you owe at death? Does someone else pay for it or does it just disappear? Our New York estate planning attorneys know that many local residents have questions about these sorts of issues when thinking about their long-term financial and inheritance issues. All of these preparations require understanding about the effect of debt after a passing, because that debt must be taken into account when figuring out inheritances, disability planning, and similar details.

In general, upon one’s death all of their debts are paid off by their estate, and the remaining assets are split according to inheritance wishes spelled out in legal documents If one’s debts are larger than available assets, then some creditors are likely to receive less than they are owed. Yet, there are a few special circumstances where survivors may be hit with obligations on that debt. It is crucial for estate planning to be done to identify all of these issues ahead of time to avoid an unwelcome surprise.

For example, take credit card debt; many residents have it. When one dies with a balance, their estate must pay that debt. If there is not enough in the estate, then the credit card company may eat the balance. But not always.

Perhaps the most obvious example when that occurs involves joint cardholders. Many people co-sign a credit card with their spouse or an elderly relative, even though only one of the individuals will actually use the card. In fact, over time you may forget that you are named on the card. If one party dies, the co-signer may be responsible for the debt, regardless of who actually make the purchases with the card. There are different types of joint cardholders, with various rules about liability upon death.

There is even more complexity following divorce. Terms of a divorce settlement often involve one spouse agreeing to pay off joint card debt. But what if that ex-spouse dies before paying it off? In most cases the credit card company can seek recourse against the other party, regardless of the divorce decree.

In addition, many different challenges arise if one uses a credit card after the cardholder’s death or when they are near-death knowing that it is unlikely to be paid off. This may occur when you use a senior’s credit card for some purchases knowing that they are in dire straights. When uncovered, this conduct may actually lead to criminal charges.

It goes without saying that, in our area, it is crucial to receive tailored advice from a New York estate planning lawyer to understand how this will apply in your case. Besides avoiding the surprise of new debt upon a death, the professional can suggest unique planning tools which might ensure as many assets as possible are protected from debt and pass on as desired.

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