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Making your end-of-life plans can be a sensitive matter. You may want to leave certain assets to your spouse or children. But what if you die with debt? Could your loved ones stand to inherit this as well? Could this negatively impact their financial future?

In most cases, your debt will not become your family’s responsibility after you die. However, passing away with debt could affect what your beneficiaries stand to inherit.

Repayment through your estate

Everything you owned at the time of your death—physical and non-material—constitutes your estate. Typically, if you have outstanding loans or debt, these will be paid off through your estate. This is good news for your loved ones—as they will not inherit your debt. However, it also means that they could stand to inherit less.

For instance, you may have made a will in which you left your car to your daughter. However, if the value of this car was used to pay off your credit card debt, then the creditors will receive repayment first. Anything remaining in your estate will then be divided according to the terms of your will.

Exceptions to the rule

Most of the time, your debt will be handled in the manner stated above. However, there are some exceptions:

  • Medical loans: Pennsylvania has a “filial responsibility” law, which states that if you have outstanding loans from medical or long-term care, your adult children could be responsible for paying this off after you die.
  • Joint debt: If you co-signed a loan or created a joint credit card with a loved one, they will be responsible for these financial obligations after you die.
  • Student loans: If you have federal student loan debt when you pass, this will be completely discharged. This means that repayment will not need to come from your estate, and your loved ones will also not inherit this debt.

Planning your estate is a complex process, and myriad factors in your unique situation could create unforeseen consequences for your loved ones. Working with an estate planning attorney to protect your assets is an essential step to providing for your loved ones after you’re gone.