We’ll walk through exactly what happens to your debts when you die, including credit card debt, mortgages and co-borrowed debt. Then we’ll explore ways to mitigate the burden these debts might have on you and your family.
Who’s responsible for debt after death?
Is debt passed on to family members like real estate or heirlooms? The answer depends on a few factors, like the amount of debt you have, who’s listed on the accounts, and your insurance coverage.
After death, debts generally fall to the estate. If you have a will, your executor will create an inventory of your assets (cash, investments, real estate, etc.) and your liabilities (credit card debt, outstanding bills, taxes owing, loans, mortgage, etc.).
If you don’t have a will, the Ontario Succession Law Reform Act (and similar laws in other provinces and territories) lays out a general inheritance plan for your estate. Sometimes, a court will appoint an estate trustee to take on the role of executor through the Certificate of Appointment, providing them with the authority to manage and distribute the estate.
Terry, if you don’t have a will, I highly recommend taking the time to create one. By documenting your wishes and assigning an executor, you can save your family a lot of work when you pass.
With or without a will, your debts must be repaid before your estate’s assets and holdings can be distributed to your beneficiaries.
If your estate has cash in bank accounts, creditors can come after what you owe them. Any assets under your estate, including property, vehicles, investments and heirlooms, are also fair game for a creditor to claim. Your executor has a responsibility to settle your debts before dispersing inheritances to beneficiaries.
But what happens when you have debt and you don’t have cash or assets when you die? Most of the time, creditors will have no opportunity to collect. They can only go after family members in specific circumstances, which we’ll cover below.