Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com.
Dear To Her Credit,
My fiancé has a home that we have a transfer-on-death (TOD)
deed that I'm named on. What happens if my fiancé dies with a lot of credit
card debt? Can the credit card companies come after me? -- Julia
Dear Julia,
The credit card companies cannot go after you for payment on
your fiancé's credit card accounts as long as you are not a joint account holder on them.
As you suspect, however, creditors show a marked interest in
getting paid by the estate when someone dies owing them money. And if your
fiancé dies with little cash but plenty of equity in a home, they could go
after that equity for repayment of his debts.
That doesn't mean they will, however. What is technically
possible and what is practical and usually done are two different things.
"I've never seen a credit card company go after an estate," says accountant
Howard Dvorkin, author of "Credit Hell: How to Dig Out of Debt." "Typically,
the credit card company will go away. However, they will do some checking
around, and if there are assets, they could hire an attorney to go after those
assets in probate court." The account balance and chances of recovering
the money would both have to be significant for it to be worthwhile from the
bank's perspective.
A transfer-on-death (TOD) deed is also called a beneficiary
deed. According to legal publisher Nolo.com,
a TOD is like a regular deed used to transfer real estate, but it doesn't take
effect until the person dies. It is easily revoked or superseded at any time,
and it must be recorded with the local county land record offices before death
or it's not valid. Once it's recorded, however, if there's a discrepancy
between a TOD and a will, the TOD wins.
A TOD is not a substitute for a will, but it keeps the
property in question out of probate when someone dies. The TOD doesn't give the
beneficiary any right to the property as long as the owner is alive, and the
beneficiary doesn't have to be told when the TOD is put into effect -- or when
the TOD is revoked or superseded for that matter.
TODs are only valid in Arizona, Arkansas, Colorado, Indiana,
Kansas, Minnesota, Missouri, Montana, Nevada, New Mexico, Ohio, Oklahoma and
Wisconsin.
If your fiancé dies, you will claim the property by filing a
sworn statement, along with the death certificate, in the public land records.
A bigger problem than credit card debt will be any mortgage
against the house. "If the property is transferred at time of death, the
loan just doesn't go away," says Dvorkin. "If the home is encumbered,
it's even more complicated." If you were married, in some states you are
allowed to assume the loan automatically. As a non-spouse, you should be
prepared to refinance if you want to keep the loan.
If your fiancé wants you to have the house when he dies, the
smart approach would be to take out term life insurance sufficient to pay off
the mortgage. If he is young, you may be surprised at how reasonable term
insurance can be. It would do you little good to have the house deeded to you
if you can't afford to make the payments by yourself.
Estate planning is a whole complex world of its own, and
even among TOD states, the laws affecting them vary. Any simple mistake can
cost a person's survivors dearly. Please make an appointment with an estate
attorney or a certified public accountant who deals with estate planning in
your state and make sure everything is set up properly in case the
unforeseeable happens before your marriage begins.
Sally Herigstad answers questions about credit every week for CreditCards.com. Herigstad is a certified public accountant, author and speaker. She also writes regularly for MSN Money, Interest.com, Bankrate.com and RedPlum.com, and has been a guest on Martha Stewart radio and other programs. You can read more about personal finance and download free budgeting worksheets at her website: www.sallyherigstad.com
To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.
Published: September 9, 2011
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Should one spouse take on full debt load? – A married couple with joint card debt wants to transfer the balance to a lower rate card. Should the better credit score spouse take on the burden alone? ...
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