Who Pays My Debts When I Die?

Our clients frequently tell us that our Living Trust is a thoughtful end-of-life planning package that helps them think about how they will distribute their assets to their families. We include a Financial Power of Attorney, an Advance Healthcare Directive and a Pour Over Will. We include a place to note contact information for healthcare providers, veterinarians, financial advisors and other key people who would need to be contacted if anything happened to them. These days, we also advise our clients to provide their login information to their online accounts.

We’re zealots when it comes to Living Trusts, yet an estimated 50% of Americans die without one—and that means Probate, the public, court-administered process of administering an estate.

After you die, your debts become the responsibility of your estate

Your estate is everything you owned at the time of your death. Settling an estate is a matter of looking very clinically at your assets in relation to your liabilities. Your executor (the person responsible for dealing with estate after your death) will use your assets to pay off your debts. This could mean writing checks from a bank account or selling off property and assets to get the money. If there isn’t enough to cover the debt, creditors generally are out of luck. But some debts have unique properties.

Here’s a look at who’s left holding the bag for debts if you die.

• Mortgages and home-equity loans. If a property has a mortgage, the lender has some protection, at least up to the value of the property. But federal law bars lenders from forcing a joint owner to pay off the mortgage immediately after the death of another co-owner. This also applies to any relative who inherits the home and lives in it. Practically, this means the family member or co-owner can simply take over the mortgage payments, at least for a certain period of time; but check the rules about this.
• An outstanding home-equity loan against the property is different. A lender can force someone who inherits a home to repay the loan immediately, which could require selling the house. That said, lenders might work with new owners to allow them to simply take over the payments on the home-equity loan as well.
• Auto loans. If the auto loan isn’t fully paid off, the lender has the right to repossess the car. But typically whoever inherits the vehicle can simply continue making payments, and the lender is unlikely to take action.
• Credit cards. Once the estate runs out of assets, credit card companies are out of luck, because this debt is not secured by assets the way mortgages and car loans are. Any joint account holder would be responsible for the bill, but people who are simply authorized users of a card would not.
• Spouses and debt. In community property states, which includes California, spouses are responsible for any debts incurred during the marriage—including credit card debt.
• Student loans. Lenders have no recourse if the estate does not have assets to repay student loans. Federal student loans are discharged upon the student’s death.

Beware collection agencies . . .

If your relatives are not responsible for your debts, collection agencies may still legally call to discuss debts and to try to find someone authorized to pay them, according to the Federal Trade Commission. But collectors cannot mislead family members into thinking they’re responsible for the debts. There are, however, circumstances in which spouses or other people would be personally responsible for your debts. These include if they:

• Co-signed for a loan
• Are joint account holders

What’s protected: Retirement accounts and life insurance

Creditors typically cannot go after retirement accounts or life insurance proceeds. Those will go to the named beneficiaries and are excluded from the Probate process. But if the life insurance beneficiaries you named are no longer living, your death benefit may go into your estate and can be subject to creditors—a compelling reason to keep your policy updated.

Have you created your Living Trust? Most of our clients are delighted with how easy the process was. The California Document Preparers team helps you through every step.

Prince: A Legacy that Transcends his Music

We were still mourning the loss of David Bowie when we learned that R&B icon, Prince, had tragically died a few weeks ago in his suburban Minnesota home. A mysterious superstar, his popularity transcended generations and genres. But what a legacy he left behind. Over 30-plus years, Prince sold more than 100 million albums, won seven Grammies and was inducted into the Rock and Roll Hall of Fame in 2004—20 years after the soundtrack to "Purple Rain" was a multiplatinum success. 

Destined to become a musician

Most critics agree that we’ve lost a musical genius. The son of musicians, Prince became interested in music at an early age and taught himself to play the guitar, piano and drums. Considered a guitar virtuoso, a master of drums, percussion, bass, keyboards and synthesizer, he played 27 instruments on his debut album.

Irreverence for gender conformity that was years ahead of its time

As a performer, he was known for and understood the power of his flamboyant style and showmanship. He came to be regarded as a sex symbol for his androgynous, amorphous sexuality and defiance of racial stereotypes. Decades before transgender politics became mainstream topics, Prince was a living case study for life in the gray area that transcended strict labeling. “I’m not a woman. I’m not a man. I’m something that you’ll never understand,” Prince sang on “I Would Die 4 U.” Few would fully grasp Prince’s fluid embodiment of both maleness and femaleness, and it was precisely this evasion of easy classification that made him endlessly fascinating. That we never quite knew what to expect was what made Prince unique and drew us to him.

Nurturing and supporting women artists throughout his career

The reasons that Prince counted many women among his fans may go beyond his music. Throughout his career, Prince respected women as artists, songwriters and performers—most unusual in the late 70s and 80s when he began his career. Prince championed and nurtured women musicians and populated his bands with female artists. He was a huge fan of Joni Mitchell’s, and he wrote countless award-winning songs—often under a pseudonym — for female artists, including Stevie Nicks, Sinead O’Connor, The Bangles and Chaka Khan.

Prince was a longtime supporter of Misty Copeland, American Ballet Theatre’s first African-American principal dancer. Copeland credits Prince’s influence and steady guidance for helping her evolve as an artist, and they collaborated many times over the years. "He pushed me as an artist in ways I hadn't been before," she said. "In ways that the ballet world doesn't particularly invite."

Other little-known facts about Prince

• Prince wrote his first song at 7, a total commercial flop.
• While larger in life in many ways, Prince was diminutive--just 5’2, he was a talented basketball player and once played for one of the best school teams in Minnesota.
• Prince was a Jehovah’s Witness and refused to swear in his songs or regularly sing old songs that championed sexual freedom.
• Prince wrote more songs than the very prolific Beatles, with a back catalogue that expands to more than 600 tracks.
• Fans have been trying to work out the meaning of "purple rain" for decades. Some believe it’s about the end of the world, a theme Prince was interested in during the 1980s.

Prince’s relatives will be seeking control of the lucrative Prince brand

One source noted that Prince has produced a significant amount of music that lives in a vault and has never been released. It’s impossible to attach a price tag to this. But there’s another economic variable to consider--as we’ve learned from other musical superstars, their music grows in value after they’ve died. There is no question that the value of Prince’s music, like that of Michael Jackson, Elvis Presley and James Brown, will grow exponentially in death.

Prince was young, just 57, when he died . . .

We don’t yet know the cause of death, though there are rumors of ill health and substance abuse. Percocet seemed to be his drug of choice for treating the hip pain that was a consequence of years of strenuous performing; jumping on and off stages in high heels takes its toll. Without a Living Trust, Prince’s estate has now become part of the court-administered process of Probate, which is how his estate will be settled—a long, expensive and very public process. Sadly, a man who loved being center stage, will continue to be the focus of media attention—but this time he will be absent.

Have you been procrastinating about creating a Living Trust? Contact California Document Preparers at one of our three Bay Area locations and schedule an appointment today!