What happens to your debts after you die?

[00:00:00] Ralph Estep Jr.: Have you ever wondered what happens to your debts when you pass away? Do you wonder if those burdens fall on your loved ones, or do they simply disappear? Imagine this: you're at a family gathering celebrating the life of a beloved relative who recently passed away, and amidst the tears and fond memories, an unexpected visitor arrives. Yeah, a debt collector, demanding payment for the deceased's outstanding loans. Maybe that sounds far-fetched.

[00:00:29] Ralph Estep Jr.: But it's more common than you might think. So today, we're going to dive into the often-overlooked topic of post-mortem debt. Uh yeah, like I said—death and taxes—and how that can impact your loved ones. So stay tuned to find out some surprising truths and learn how to protect your family's financial future.

[00:00:49] Ralph Estep Jr.: Let's start by taking a look back at yesterday's show. Yesterday, I went back to the Stone Age, as some people told me in the comments, but I talked about nine reasons you should still write checks. So if you missed it, I want you to go back and give it a listen because I really uncovered some surprising benefits of this old-school payment method that might just change the way you manage your finances.

[00:01:10] Ralph Estep Jr.: Now, all of our old episodes, I mean just yesterday's, but they're all at askralph.com. I'll put the listener message here. Well, we got a great message from Blake, and Blake wrote this. He said:

[00:01:21] Ralph Estep Jr.: "Dear Ralph, my father recently passed away, and we're discovering that he had quite a bit of debt we weren't even aware of. Creditors are calling us daily. We're not sure what to do. We have no idea the number of loans and credit cards Dad had. And to be honest, we're all feeling a bit overwhelmed trying to sort this out. Are we responsible for paying off his debts? How can we prevent this from happening to our own families in the future? Please help."

[00:01:47] Ralph Estep Jr.: Well Blake, I want to start by saying thank you for your message. My heart goes out to you during this difficult time. I lost my mother a year plus ago, and it's never easy to deal with these things, just the emotional side. But this is an incredibly important discussion we should have today because I know many listeners are going to find themselves, if they haven't already, in a similar situation, and they're going to have similar concerns.

[00:02:11] Ralph Estep Jr.: So let me provide some clarity and guidance today.

[00:02:17] Ralph Estep Jr.: Well, I'm thrilled you've joined me today. Your trust and dedication mean the world to me, and I'm committed to providing you with the knowledge and tools you need to master your finances and grow in your faith. I'm going to ask you to do me a favor.

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[00:02:47] Ralph Estep Jr.: And as always, if you join our community, I'm going to give you a free copy of my book. It's called Mastering Your Finances. Now, like I said before, if you go on Amazon and buy that, it will cost you 10 bucks, but it's my gift for you for being a part of our financial family.

[00:03:03] Ralph Estep Jr.: Now let me remind you: this show is all about answering your questions.

[00:03:06] Ralph Estep Jr.: So keep them coming. You can email me at ralph@askralph.com or simply visit our website, that's askralph.com. You'll see a little microphone icon down at the bottom, and just click record and tell me what's on your mind because the truth is, your questions, just like this question today from Blake, they truly do shape our discussions, and it allows us to all learn and grow together.

[00:03:34] Ralph Estep Jr.: Well, let's start by grounding ourselves in scripture and really looking at God's word. In the book of Proverbs 13:22, it tells us this: "A good person leaves an inheritance for their children's children, but a sinner's wealth is stored up for the righteous." Now, this verse reminds us of the importance of responsible financial stewardship and how these impact our decisions, not just for us, but even for future generations.

[00:04:04] Ralph Estep Jr.: Well, I want to address Blake's question and explore exactly what happens to debts after you die.

[00:04:10] Ralph Estep Jr.: Now, it's not going to be your issue, but I'd hope you'd be interested in understanding how this impacts your loved ones. So, I'm going to tell you a personal story about my cousin Bruce. Now, Bruce was this guy, man. He was the life of the party. You always knew that Bruce was there because you would hear things popping off all around you. Bruce lived large.

[00:04:29] Ralph Estep Jr.: He loved deeply. And unfortunately, a part of that came along with that, as he spent freely. Now Bruce, unfortunately, passed away at 45. Now, the family was devastated. But the shock of his loss—you know, that emotional thing—was compounded by another surprise. And that was Bruce left a mountain of debt. As we all gathered for his funeral,

[00:04:52] Ralph Estep Jr.: The whispering started. It's kind of sad at a funeral, but everybody started talking about this because it was the thing that was on everybody's mind. Bruce had huge, unpaid credit card bills. He had a second mortgage that nobody even knew about, not even his wife. And he had personal loans from friends and family.

[00:05:10] Ralph Estep Jr.: That's what people were whispering about. I guess I'm not going to get that money back from Bruce. So, the grief at his funeral—the grief at his passing—was completely overshadowed by this looming financial nightmare. His wife, Julie, she was blindsided. Julie had no idea the extent of their financial troubles. The problem is the creditors started calling.

[00:05:34] Ralph Estep Jr.: They started calling day and night. They demanded payment. Some even showed up at the house during the wake. I know you can't believe that, but it's the honest-to-God truth. It was a mess. And here's the problem. The situation created rifts in our family. Some relatives felt betrayed by Bruce's secret borrowing, others were just angry at the creditors for their insensitivity. They couldn't believe that they were showing up at the wake.

[00:05:58] Ralph Estep Jr.: They couldn't believe they were harassing Julie. And here Julie's caught in the middle. She's overwhelmed with grief, and she's got this fear about what's going to happen with her financial future. So as we navigated this challenging time, we learned some hard truths about post-mortem debt. And so here's what you need to know.

[00:06:15] Ralph Estep Jr.: These are the things I want you to understand today, and I'm going to address this one right, square up: debts don't disappear when you die. That's just a fact. They don't just disappear. They become what's called a part of your estate. Now, in most cases, your heirs aren't personally responsible for the debts unless they co-signed on the loan or they're a joint account holder.

[00:06:36] Ralph Estep Jr.: So if they're a co-signer, well guess what, it's what they call jointly and severally liable. They're going to be liable just like you were. Or if they're joint on the account. Another thing you need to understand: creditors have a right to be paid from the estate before any other assets are distributed to anybody, to any of the heirs.

[00:06:56] Ralph Estep Jr.: That's just a fact. So if you're in one of these situations, you've got to realize that the creditors have the right to be paid from that money in the estate. Now, in most cases, this is going to be the truth: if the estate doesn't have enough assets to cover the debt,

[00:07:11] Ralph Estep Jr.: And I'm going to say "in most cases" because everybody's situation is different—the debts just go unpaid. Now, creditors usually can't come after your heirs' personal assets. So, if your father passes away and he doesn't have any assets left, they can't just go after the children's assets unless they co-signed for it,

[00:07:31] Ralph Estep Jr.: Or they were somehow connected to the account. But I want to tell you there are exceptions, and I'm not an attorney. I can't give you legal advice, but there are exceptions, especially in community property states where a surviving spouse might be responsible for certain debts. So if that's your situation, you want to get some good legal advice right away. Now, the other thing you need to understand is some assets like life insurance proceeds and retirement accounts with named beneficiaries pass outside of the estate completely.

[00:07:59] Ralph Estep Jr.: So they're protected from creditors. So you might be saying, "Ralph, oh, I just—you just told me something I should know." That's right. So if you've got life insurance proceeds or a retirement account, each of which have named beneficiaries, those things can generally (and again, I'm not an attorney) generally can't be touched by any creditors. So let's talk about Bruce's case.

[00:08:21] Ralph Estep Jr.: In Bruce's case, Julie had to sell his car. She had to liquidate his retirement accounts and his investments. She had to pay off some of the debts with the money she got. Now, the good news is, Julie was able to keep their home. But unfortunately, because that home had that second mortgage on it, Julie had to refinance it, pay it off, and get a new mortgage.

[00:08:41] Ralph Estep Jr.: And it was a long—I'm telling you—it was a long and stressful process. It took Julie about a year to resolve it. And let me tell you right now, this experience was a wake-up call for our entire family. It made a lot of us realize the importance of open financial communication and proper estate planning.

[00:09:00] Ralph Estep Jr.: A lot of people don't think about that until you're faced with that situation head-on. And listen, it's not just about protecting our assets. It's about protecting our loved ones from that unnecessary stress—that stress that Julie went through and that hardship. It was already hard enough losing her husband.

[00:09:16] Ralph Estep Jr.: Now she's got to deal with all of this during that difficult time. So you might be asking me, "Ralph, how can I protect or how can I prevent from burdening my family when I die?" So let me give you some actionable steps. The first one, and this is the one thing that Bruce should have done with Julie, is to be transparent about your finances.

[00:09:36] Ralph Estep Jr.: You’ve got to talk to your spouse, talk to your family members, and tell them the truth about what's going on. Number two, I can't stress this one enough: create a comprehensive list of all your debts and assets, and keep it updated. You know, if you're a young person, maybe you don't realize that your days are numbered. Unfortunately, people die every day from a car accident or some unexpected illness. But if you're keeping that comprehensive list up to date with all your debts and assets, then the person handling your estate or the executor will know where to find it. One of the things we talked about was considering life insurance.

[00:10:09] Ralph Estep Jr.: As I said, generally life insurance isn’t able to be used to pay off those debts and those creditors. So that's a great way to provide for your family. Another thing you can do is pay down your debt while you're alive. Now, this isn’t rocket science here. It’s all about living within your means and avoiding unnecessary borrowing.

[00:10:29] Ralph Estep Jr.: And I’m not saying that was the case with Bruce, but think about it for a moment. If Bruce had worked on paying down his debt, he wouldn’t have left Julie with that credit card debt and those personal loans. Unfortunately, in our case, Bruce owed everybody because he was hitting everybody up for money. It was kind of like playing a shell game; he was trying to rob Peter to pay Paul. And one of the things I’m also going to stress here is it’s vitally important that you have a consultation with an estate planning attorney. You’ve got to understand the laws in your state and create a solid plan. A lot of people don’t do that.

[00:11:02] Ralph Estep Jr.: And it’s frustrating to me. It’s not that expensive, and you're going to put yourself in a position where your family will be prepared, at least with some boundaries of what they need to do. Another thing you've got to do—and I’ve talked about this on other shows—is you've got to regularly review and update your beneficiary designations.

[00:11:20] Ralph Estep Jr.: You know, if you’ve got life insurance or retirement accounts, make sure you’ve got named beneficiaries. Because the last thing you want to do—think about this for a second—is if you don’t do that, and that life insurance or those retirement accounts get dumped into your estate, well, if you owe a lot of people, that money is going to be used to pay off those creditors.

[00:11:40] Ralph Estep Jr.: And another thing, and this is the last one on my list here, you’ve got to talk to the estate attorney about this: maybe you want to think about setting up a trust. A trust can be used to protect certain assets from creditors. Well, let me share another example of how proper planning can make a world of difference. As you all know, my mother was diagnosed with a terminal illness back last year. It was a difficult time, but we were able to have some conversations about our finances and her final wishes. So we were able to work together to create a comprehensive list of her assets and debts.

[00:12:10] Ralph Estep Jr.: My sister and I were able to do that. My mother had already updated her will, there were clearly designated beneficiaries, so that wasn’t an issue. She had worked with an attorney, she set up a durable power of attorney for financial matters. Her stuff was pretty well organized. Honestly, my sister handled most of that. But the biggest thing, the biggest sense of safety and peace of mind, was that she had that advanced medical directive.

[00:12:36] Ralph Estep Jr.: As I shared, you know, my mother was diagnosed with a glioblastoma, a brain tumor. She wanted the doctors to go in and operate, and they did, but it wasn’t successful, unfortunately. But when the doctors came to us after that and said, "Hey, what do you and your sister want to do?" We just relied on Mom’s directive, and she passed peacefully. And when she passed, we were able to focus on celebrating her life and supporting each other.

[00:13:03] Ralph Estep Jr.: We didn’t have to squabble about, you know, who’s going to handle this now. Of course, there were still financial things that needed attention, and my sister was handling those. But because Mom had taken the time to put those things together, they were very straightforward and manageable. That’s a stark contrast to what we experienced with our cousin Bruce. Remember this: addressing these issues isn’t about being morbid or pessimistic. You might be thinking, "Ralph, man, this is a rough talk. I mean, you're talking about people dying." But it is a reality, and it's an act of love and responsibility toward your family.

[00:13:36] Ralph Estep Jr.: Think about this: you want to be responsible to your family when you're alive, but you can’t just go and drop the ball and not do that when you pass away. And by taking control of your finances now and planning for the future, you're going to provide them with peace of mind and, more importantly, security for those loved ones. Well, let me recap for a minute.

[00:13:55] Ralph Estep Jr.: As I said, debts don’t simply vanish when you die. I've heard that spoken from a lot of people that say, "Oh, Ralph, no big deal. When I pass away, my debts go away." It doesn’t work that way. And those debts can significantly impact your estate. But with proper planning, you can help to have a positive impact on your family's financial well-being. But you’ve got to have that open communication.

[00:14:20] Ralph Estep Jr.: You’ve got to be responsible with your financial management, and if you do those things, you can protect your loved ones from these unnecessary burdens.

[00:14:38] Ralph Estep Jr.: You can do this. You might not be able to control when you pass away, but you can certainly control how things are going to play out when you do. So tomorrow, we’re going to be talking about how can I keep from burdening my heirs with an inherited IRA. Yes, it sounds like Death Week on the Ask Ralph show, but I’m really trying to give you some positive things you can do.

[00:14:58] Ralph Estep Jr.: It’s a natural follow-up to what I’ve talked about today, so you don’t want to miss that tomorrow. Listen, if today’s episode has sparked some questions about your own financial situation, maybe it’s sparked some questions about estate planning, I want to encourage you to schedule a consultation with me. For just $150, I will work with you to create a personalized plan to improve your personal finances.

[00:15:19] Ralph Estep Jr.: Maybe that’s not your issue. Maybe you need help growing your business or achieving your financial goals. I can work with you. I can help you. I want you to visit askralphpodcast.com/store and book your session today. Let’s work together to secure your financial future and create a lasting legacy for your family.

[00:15:39] Ralph Estep Jr.: Remember this: my passion is to help you achieve financial success. I want you to live out your dreams, I want you to grow in your faith, and I know together we can master your finances from a Christian perspective. So, as I always say, stay financially savvy, and God bless you.