Spousal death and debt
When a spouse dies, how do you pay off their debt?
By Alan Klayman
Dear Maturing Loans,
My husband of two years just passed away from a heart attack. He has left me a large amount of hospital debt, as well as some credit card debt that I knew nothing about. I took out an equity loan on my house to pay for a new roof and took extra to pay for his debt, which he had acquired before we met. About a month before his death, he had a mild heart attack, and then about six weeks later he passed away from a massive heart attack. Meanwhile he had every intention to change his insurance policy to my name, which he had on his to-do list on his desk, but unfortunately, time did not allow this. Now I am stuck with his debt and his parents are getting the insurance money that I need to pay his debt. His mother and sister feel I should get this money and his father is fighting me. Do I have a chance in court? Please advise. We are from Nebraska. -- Carol
The first thing you should do is speak to your attorney. If you do not have an attorney, find one who specializes in estates, wills and trusts. If you cannot afford an attorney, many communities have legal aid available for people that cannot afford legal services.
List out your debt obligations and discuss with your attorney a way to reduce the debts, if not the interest costs associated with the debts since they were last paid. The creditors will be much more receptive to working out an arrangement with you if you contact them and offer them a payment schedule. Don't avoid contacting them.
On your way to your attorney, you should familiarize yourself with the concept of 'elective share.' Depending on where you live, you are entitled to one-half or one-third or some amount similar to that of the entire estate under certain conditions. But you need to be careful because some states, like Nebraska, can exclude certain assets like an insurance policy from the elective share calculation.
In Nebraska, you have nine months from the date of death to make this election. So do some research and compare what you are receiving versus what your elective share would be. The more of this type of information you can collect, the better your attorney can assist you and the less expensive your trip to see your lawyer will be. Many attorneys are paid by the hour, so the more information you give them the less they have to research. But do it now, the clock is ticking.
This leads to a broader discussion of estate planning. There really is no reason whatsoever for anyone who has an annuity, a life insurance policy, an IRA, a POD account (pay on death), or any other type of account that lists beneficiaries not to review these every year and update them. That said, everyone who is married or in any type of long-term relationship where there is some legal or implied legal obligation for the care and/or protection of another, must sit done once a year and make sure that every beneficiary designation is up to date on pensions, 401(k) and 403(b) plans, and any account with a beneficiary. This also applies for joint accounts. Accounts listed as JTWROS -- Joint Tenants with Rights of Survivorship -- and other types of joint accounts also need to be reviewed.
It is unfortunate that you face this situation right now, but others can learn from this situation and take the time to see that reviewing these beneficiary designations can save a ton of time, money, and family grief if they are done on a periodic basis.
Thanks for the question, see you back here next week.
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Published: August 20, 2008
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