Does Debt Survive Death?
One thing we know for certain is that death is inevitable. During our lifetime, we want to make the most of our life and leave our loved ones in the best possible situation. Planning for our loved ones after our passing goes well beyond our wills and inheritance. Something we may not think about is: do you want to leave your loved ones or your estate with your debt? What happens to your credit card debt or other forms of debts when you die? Does your estate inherit the debt? Does your family have to pay off your debt? These are all great questions, and ones we often forget to consider.
A recent Leger poll shows that six out of 10 British Columbia residents over 60 carry at least one form of debt. It is time to normalize the conversation of debt which is part of life and death. If it turns out we are overwhelmed by debt now, it is important to have these conversations with our loved ones, and it might make sense to restructure with a consumer proposal while we are able to, and exemptions still exist. This is one way we can avoid leaving our debt for our loved ones after our death.
The simple answer to all these questions is, when you die if there are insufficient assets to cover your debts, your family will not have to pay them off for you. When a Canadian die, their assets – house, car etc. – are first used to pay off any liabilities (debt) they may have first, before being disbursed to those listed in the will. So, technically you (your estate) are paying off your debt at death with your assets, not your family. Debt relief, right? Well, yes unless there was a co-signor on your debts.
Just as in a divorce, if both spouses co-signed for credit, one cannot just walk away from the debt based on a divorce agreement, the same is true with co-signers when it comes to death. The surviving co-signer would become responsible for the debt in full when the other passes on.
How Can I Prevent My Loved Ones from Inheriting My Debt?
In Canada, we are fortunate to have laws that prevent creditors from transferring the responsibility of our debts to those we leave behind when we die, unless they willingly agreed to be a co-signer beforehand.
Some lenders, creditors and collection agencies may, in fact, try to collect from you are your surviving family or estate.
Here are some proactive steps you can take to protect your estate and your loved ones:
1. Evaluate your current situation - What are my assets? Liabilities? Is anyone co-signed on my debts? When we pass, we can assign where our belongings go, the state will support what your Will says.
When it comes to a death estate, we think we will just inherit the stuff, but the creditors relationship survives not just to the person, but to their labour and their property. The asset exemptions that are inherent in the insolvency act, do not apply at death, so we need to have assigned a beneficiary for our assets.
2. Purchase life insurance – If you tend to incur a lot of debt and your estate is your beneficiary, then a life insurance policy can be worth the investment. That way, your dependents (spouse, children, etc.) will be covered and a portion of the payout they receive can be used to pay out outstanding debts.
3. Get your will in order – Even if you are not expecting to die, creating a will is one of the best ways to see that your loved ones are treated fairly afterward. Otherwise, your remaining properties will be subject to your province or territory’s laws of intestacy, which is what happens when you do not name any beneficiaries. Be sure to choose a trustworthy friend or family member to act as your executor. Your executor does not inherit your debt upon your passing.
4. Set up an automatic repayment plan – If you do not want the money to come out of your estate, you can always establish a plan through your bank that would automatically repay your debts if you were to die unexpectedly or become too ill to take care of them by yourself. Although it can cost extra, you might also want to consider things like balance protection insurance for your credit cards.
5. Seek legal counselling – Another way to give your beneficiaries and assets some added protection is to hire a lawyer who specializes in wills, trusts, and estates. While professional legal advice can be a bit pricey, it can also be worth the investment, as it puts less stress on your loved ones after you are gone.
6. Know your rights – A lawyer can also teach you and your loved ones about what creditors and debt collectors are legally allowed to do if you die with debt. Remember, the money you owe could be withdrawn from your estate, but they cannot demand payment from a beneficiary or executor unless they are a co-borrower. Even if that is the case, creditors are not permitted to threaten them or contact them outside of specific hours. Make sure your loved ones are aware of your attorney so they can get all the advice they need. If necessary, they can also produce a death certificate when creditors or debt collectors come knocking.
Once you have determined that you need debt help, reach out to a Licensed Insolvency Trustee firm, like Bromwich+Smith for a free, no obligation and personalize consultation. You will get the facts, know your rights, and be able to make an informed decision to get out of debt.
At Bromwich+Smith, Debt Relief Specialists are available by phone at 1.855.884.9243 or you can request a call back via the contact us page. There is no need to travel to a local office. Licensed Insolvency Trustee, Bromwich+Smith, is now offering video appointments, with all services available from the comfort of your home.
* We want to make it abundantly clear that the best professional to discuss all things to do with your death estate is an estate lawyer. Please double check with your estate lawyer before making any changes or decisions with your debt and your estate.
By Taz Rajan Community Engagement Partner at Bromwich+Smith
Taz has been in the finance industry for nearly two decades and has always been passionate about education and empowerment. Having declared bankruptcy herself, she intimately understands the shame, stigma surrounding matters of debt as well as the joy and relief that comes from restructuring. Taz actively works to normalize the conversation of debt through blogs, media interviews, webinars, lunch & learns and through building relationships.