Who pays fiance's credit card debt if he dies?

To Her Credit columnist Sally Herigstad
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, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.

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Question for the CreditCards.com expert

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

Answer for the CreditCards.com expert

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 It is easily revoked or superseded at any time, and it must be recorded with the local county land record offices before death or it's not valid.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.

See related: What happens to credit card debt after death?, Starting a credit life after a spouse's death, Credit card law compels speedy estate settlement for debt after death

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Updated: 01-20-2018