Many older Americans are in bad financial trouble. One and a half million senior citizens lost their homes during the recession and more than half a million are currently in foreclosure. All in all, three and a half million bad loans are held by people 50 and older. More than two million people over 60 even have student loan debt and owe an average of a little less than $20,000. Bankruptcies among the elderly have risen sharply since 1991. Worse, more than 60 percent of people over 75 have no savings.
This unfortunate trend for older people is expected to have a significant impact on estate planning. When the older generation passes away, many people will inherit little more than debt. Fortunately, most types of debt are not transferred to heirs. It helps to know what happens to different kinds of debt when a person dies.
Secured debt, like mortgages and car loans for example, is not forgiven upon death and passes on to the estate of the deceased person. If the estate has enough money to pay off the loans, the heirs can take possession of the home or car. If not, the heir can assume the loans and continue paying. Refinancing is another option. The asset can always be sold to pay off the loan.
Unsecured debt, like personal loans and credit card debt, is transferred to the estate. If the estate has money, it must pay these loans. If there is not enough money to pay all the creditors, usually the balance is divided equally among the creditors. Student loans are forgiven upon death.
Older people in New Jersey who are in better financial shape should try to minimize problems by thinking about estate planning well in advance.
Source: Daily Finance, “Inheriting Debt: How to Deal When You’re Left a Money Mess”, Adam J. Wiederman, June 24, 2013