What happens to debt when someone dies? |
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What happens to debt when someone dies? – Lucy, age 17, Cincinnati, Ohio
What happens to debt when someone dies? – Lucy, age 17, Cincinnati, Ohio
Imagine everyone has a large piggy bank that represents everything they own. Inside it are items such as cash in a bank account, a home, a car, clothing, jewelry, furniture, investments and other valuables. On the outside of the piggy bank are sticky notes labeled IOU – promises to repay borrowed money some day.
These IOUs represent the debt people owe others. Examples of consumer debt include credit card balances you haven’t paid off, outstanding car loans or home loans, unpaid medical bills and student loans.
As a finance professor who teaches and studies how money works, I can explain that most debts don’t disappear when the person who owes money dies.
Usually, executors manage estates
When someone passes away, their assets and debts become what’s known as an estate. Estates include everything that person owned, such as cash in bank accounts, any homes, boats, vehicles, clothing, jewelry, furniture, stocks, bonds, retirement accounts, intellectual property – copyrights, patents and trademarks – and other valuable things.
Then, someone is appointed to manage the estate. This person, called an executor, manages the distribution of anything left in the estate. In most cases, the deceased names an executor in their will, a document that spells out what should........