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Dying with debt

Dying with debt

Estimated read time: 3-4 minutes

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SALT LAKE CITY -- A recent survey from CESI Debt Solutions says 39 percent of the retired people they surveyed are not worried about paying back their credit card debt in their lifetime. This can be especially bad news for credit companies since they're so far down on the list of people who can claim money from the estate of a debtor.

Working with a family member of a person who died with a lot of debt is becoming somewhat more common for estate attorney Mark Morrise with Callister, Nebeker and McCullough.

"I've seen a lot more in the last year and a half than I saw before that. [I saw] maybe one or two before that," Morrise said.

When a person dies with significant debt, it has several ripple effects on the surviving family. Morrise says the widow or widower would get hit the hardest, especially since their credit scores are so closely tied.

"They might have to pay their deceased spouse's debts because, typically, a spouse can be held liable for the debts of the other spouse. But children do not inherit their parents' debts," he said.

Even if a child doesn't inherit their parents' debts, that doesn't mean they'll inherit all they were intended to receive, either. Morrise says he's read about cases where someone did not receive the full amount of their inheritance because their father or mother died owing so much money. Luckily, there are allowances set up to ensure the surviving family isn't left with nothing.

  • The Homestead Allowance provides $22,500 for a spouse and minor children.
  • The Family Allowance provides $27,000 for a spouse and minor children.
  • The Exempt Property Allowance provides $15,000 for a surviving spouse and any children, including adults.

"Say it was a spouse," Morrise said. "The [allowance] total would be $64,500. If they were children, it would be less. It might only be $15,000 for children."

There is a pecking order as to who gets first claim to recover money from an estate.

"The highest priority is funeral expenses. The next priority is administrative expenses. Then, there are federal taxes."

Morrise says after that, the estate has to pay off expenses from the last illness. Then, state taxes are recovered. At the bottom of the ladder are unsecured creditors, like credit card companies that are owed a balance. They evenly split what's left over, and it might only help them recoup pennies on the dollar. Morrise has worked with creditors who received only 18 percent of what they were owed by someone who died.

But it is crucial federal taxes are paid off when they're supposed to be. If not, the executor of the will can be in trouble.

"Suppose someone were to pay out the money in the estate to the unsecured creditors and later discover that that decedent owed some federal tax, the person who was acting as the executor could become personally liable for those taxes because they should have paid the federal government first," Morrise explained.

There are other funds that are taxed but they can pass free from creditors. For example, Morrise says life insurance payments do not have to go to unsecured creditors to pay off debt someone left behind.


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Paul Nelson


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