When meeting with an estate planning attorney, you are probably thinking about how you want your assets to be distributed to your loved ones after your death.

But have you thought about what will happen to your debt?

One study conducted by Experian in 2016 found that 73% of America will die with debt. In fact, the same study determined that the average American will die owing over $12,000 to creditors. Add in a mortgage, and the average debt burden soars to over $60,000.

In North Carolina, debt is regulated by the probate process after death. Prior to inheritance distributions, assets are distributed according to state law to ensure that any remaining debts are satisfied. 

Fortunately, you can start planning now to protect your assets from creditors and preserve your family’s inheritance.

Can debt be inherited?

Your family cannot inherit debt your debt in North Carolina. However, they may be on the hook for any debts or loans where they acted as co-signers. 

If someone co-signs for a loan with the deceased prior to their death, then they are liable for the remaining balance of the debt that the deceased still owes. For example, if they were to co-sign for a car payment, then they would be responsible for making the car payment after the decedent’s death.

Authorized users of a credit card are treated differently than co-signers. Authorized users may have the card holders permission to use a credit card, but they are not responsible for any debt incurred on the account.

What happens to debt after death?

When someone dies in North Carolina, the probate process leverages the decedent’s estate to pay any remaining debts that they incurred but left unpaid. Executors of an estate are required to settle debts before any inheritances can be distributed.

Following the death of the decedent, the executor must publish a Notice to Creditors in the local newspaper. This notice is meant to notify all creditors who may have a claim against the estate. Creditors then have three months from the publication of the notice to file a claim.

The probate process includes five general steps. First, all assets in the estate are calculated. From there, funeral expenses, taxes and administrative fees are paid. Then secured loans, such as car payments and mortgages, are paid. Unsecured loans, such as credit card debt, is then paid from the estate. Finally, the remainder of the decedent’s estate is distributed among the inheritors.

While debt is not inherited, North Carolina probate process requires that the decedent’s debts are repaid first. In some situations where the decedent incurred significant debt, it is possible that those named in the will will not inherit anything. In the event that the deceased was insolvent, creditors may write the debts off as a loss.

Have Questions? Contact A Wilmington Estate Planning Attorney

If you are concerned about how your debt may affect the distribution of your estate, you should meet with a North Carolina estate planning attorney to discuss how to minimize the impact of debt on your family after death. There are ways in which you can structure assets and manage debt now to protect your assets for your family.

Contact the estate planning attorneys at Rountree Losee at 910-763-3404 for a consultation.