When a spouse dies, how do you pay off their debt?
By Alan Klayman
Maturing Loans
Alan Klayman is CEO of Klayman Financial LLC. He served as a vice president at Fidelity Investments, worked as a financial planner for American Express, and built fixed income strategies on Wall Street at The First Boston Corporation. At CreditCards.com, he writes Maturing Loans, a weekly feature in which he answers readers' questions about retirement and debt issues.
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
Dear 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.
Alan Klayman is creator of MyIncomeStrategy.com and CEO of Klayman Financial LLC. Klayman specializes in retirement income planning, business management and planning, estate planning, tax-advantaged investing, trust investment management, professional money management, insurance and annuities, mutual funds, fixed income securities, and institutional and personal retirement plan administration.
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