It’s a sobering statistic: 1 out of every 1 person dies.
If you are of a certain age, and your finances are not where you want them to be, it is understandable that a certain feeling of helplessness can set in. You may even be tempted to throw in the towel on pursuing financial security. “I’ll never be wealthy, so what does it matter if I rack up a bunch of credit cards and live the life I always wanted?“
I understand that feeling of hopelessness that can befall you. After all, so many us have a sense that eventually things will all work out in the future, and when that doesn’t happen, either due to unforeseen circumstances or due to not making a plan, it can be heartbreaking.
But before you take out a reverse mortgage and liquidate your assets and buy that vacation home in the Azores, you might want to take a pause, and realize what’s at stake.
Because your situation doesn’t go away just because you do.
(Important: None of this should be considered legal advice. I am not a lawyer, and if you have questions around this area you definitely want to consult one. This post is designed to just be a broad overview, food for thought. Hell, I don’t even mention the phrase “revocable trust” anywhere, except here. Please see my disclosure policy.)
Some things will have to be paid
In general, your assets and debts all go into something called your estate. And unless you’ve set up a different arrangement, your estate will go through something called probate. This is essentially just dealing with all of your stuff based on your wishes and the laws of your state.
But for our purposes, some things will have to be paid.
In general, your estate’s liabilities are paid for by your estate’s assets. If you have more assets than liabilities, then you’re in the clear.
It’s just when that’s not the case that it gets more complex.
If you have debts that are co-owned by someone else, those debts usually pass seamlessly to them, avoiding probate and being part of the estate. That is both good news and bad news. If you co-signed a loan for someone else, congratulations, the problem is now yours.
Mortgages and home-equity loans will likely move to whoever inherits the home. Car loans depend on the situation, but it is possible that who inherits the car can continue to make payments.
Student loans are thorny. Federal student loans are discharged at death (woo!), but private loans are not, and are taken out of the estate’s assets. If there are no assets, and the private loans have no co-signers, then the lender is out of luck. (Woo?)
Credit card debt is similar to private student loans. Because the debt is unsecured, there’s nothing to be done if there aren’t enough assets in the estate and there isn’t a co-owner of the debt. In some states with community property laws, a spouse may become responsible.
Don’t do it for you
Keeping your affairs in order is a gift you can give to those around you.
You can find out the specifics about certain kinds of debts in an estate. Here are some good resources from both the Consumer Finance Protection Bureau and NerdWallet.
And you should consult a lawyer, who will know about the laws in your state.
But the raw details are, in a sense, beside the point.
Keeping your affairs in order for your impending death is not really something you do for yourself. Once you’re gone, you’re not going to be around to care one way or the other.
But keeping your affairs in order is a gift you can give to those around you, those who will be taking care of your affairs once you’re gone.
You don’t do it for you, you do it for them.
So by racking up credit card debt, or in other ways letting go of your financial situation, might make you feel better about your life in the short term, you are making it harder for your loved ones, whether it’s giving them less of a legacy, or just making them have to deal with that much more.
How nice would it be to leave a gift to others that didn’t include any liabilities, or as few liabilities as possible? You can always work toward that. Don’t book a flight to the Azores just yet. You’re not done.
