An increasing number of Americans are not able to pay off their debts before they pass away. This can create issues for those people's retirement plans and for their estates.
In "1 in 5 Americans will die in debt" MarketWatch discusses the phenomenon that more and more Americans likely will not pay off all of their debts before they pass away. This information comes from a survey conducted by CreditCards.com in which 21% of respondents said they would not be able to pay off their debts. This was up from a similar survey conducted last year in which 18% of people responded with the same answer.
The inability to pay off their debts during their own lifetimes makes it more difficult for Americans to retire. If a person still needs to pay creditors, they normally still need to be working and earning money.
It also creates problems for estates.
Generally speaking, any debts remaining when a debtor passes away (for which he or she is solely responsible) are paid by their estate. However, if there are insufficient assets to pay all the debts, then the debt is paid off pro-rata. There are exceptions in community property states and for jointly held debts.
Of course, if there are not enough assets in an estate to pay off creditors, then there will be no assets to distribute to any heirs.
If you are concerned about your debt, it would be a good idea to speak with a financial advisor to see if there is any way to lessen that debt.
While you are at it, consult an estate planning attorney about what the debt might mean for your estate and your heirs. Please contact my office to set up a consultation to discuss debts and the other financial aspects of your plan.
Reference: MarketWatch (Dec. 9, 2015) "1 in 5 Americans will die in debt"
Suggested Key Words: Estate Planning, Debt, Heirs