PRAVEEN LAM: Dealing with Debts after one’s Death

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The most common question that comes to our mind regarding 'Debt' is, whether or not our families have to deal with our debts after we die. If the answer is “yes”, then how should it be done? Well, in actuality, it is necessary to understand the type of debt that is under consideration. The most common points to be seen, as the case may be, are as follows:

• Did the deceased have any kind of insurance that covered the debt? Examples: Death- coverage for a mortgage, payment protection insurance for personal loans or credit cards, or simply life insurance.

• Was it a joint debt? If yes, then after the death of one of the debtors, the debt would pass on to the remaining person/ persons that are still alive.

• In case you are one of the two joint tenants and the other tenant dies, it means that the property, which was previously owned jointly by the both of you, would pass on to you. But it is a separate case, if you are one of the common tenants. Here, on the death of the other tenant, as each of you previously owned a separate stake in the property, his stake will not automatically pass on to you.

• When it involves payment of debts from the proceeds of selling the debtor’s estate, this estate may have been held jointly with other kin as a shared property. It may also comprise their property, savings and assets. In many cases it becomes necessary to take the help of the probate court to make a decision regarding the distribution of assets when there are a lot of debts standing in the name of the deceased and there is enough money coming out of the estates.

• But sometimes when there is not sufficient amount of money in the estate of the deceased person for repayment of all the debts and he has also made a will, there will be preferential debt- payment; viz. the most important debt will be paid off first, then the second most crucial debt and so on. This will continue till all the money is used up. After this only, excluding life insurance asset, (which is exempt from probate and which, the intended beneficiary will acquire, regardless of any situation), if money remains, it will be given to the person bequeathed in the will.

• When the deceased person has personal loans or credit card outstanding debts in his name and the credit card provider realizes that the loans cannot be repaid, the latter may agree to write the debt off.

Taking the above cases into consideration, it would be better to plan appropriately for your future and hence ‘death’, because you would not want your family members to struggle to sort out your debts once you die. Do provide for a hassle-free tomorrow for them by purchasing Life insurance and other payment protection plans.

Your family will then be able to cover all your debts after your death. Let them remember you as a man who planned for his family.

And one who plans well for his family’s future is a man fondly remembered as a good planner.

Don’t you want to be one?

Finally, I cannot but help finish this article with these famous words:

Remember the day that you were born,

All were laughing and you were crying;

Lead such a life that when you die,

All may cry and you go laughing!

The last line here means, 'all will cry for the good man you were; never putting anyone in trouble' and you will go laughing; happy with all you have done for your family; planning for their smooth future!

About the Author: This guest post is contributed by Alex from Contrarian Investing