Passing Down Debts to Beneficiaries

Posted by: Sophie H. | Jan 14,2008


I have seen evidence lately of many retirees not treating debt seriously for one simple reason: there’s no reason to pay it off because they’re going to die first anyway.  Suppose you are 80 years old and $20,000 in debt.  Without the most aggressive payment plan, this debt is probably never going to be paid off.  

What many retirees are doing is applying for a second mortgage on their homes knowing full well that they’re never going to have to pay it off.  If you’re wondering if a debt incurred during your lifetime can be passed on to your beneficiaries, the answer is it cannot.  A bank or other creditor can try to get payment back for those debts, but a descendant is not legally obligated.  

In the case of a second mortgage, the house will be sold off in order to pay back that mortgage.  So while a descendent won’t have to pay that mortgage after you die, that person will not receive money from the sale of the house.  In effect, you’re depriving your children or grandchildren the benefits of a will.  If you have no descendents, this is another issue, but I’d still think it’s better to leave money to a charity rather than be in debt for your remaining years.  

This whole thing shows a great indifference to debt on the part of many retirees.  It’s the most egregious form of procrastination, which can potentially diminish the value of whatever you leave behind.  The answer is to get a life insurance policy to help pay off remaining debt, but even this should not be an excuse to avoid that debt while you’re still alive.  The earlier you deal with the debt the better, because by the time you reach 85 or older, you may think that debt isn’t much of a problem when it really is.  

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