Death and debt

[whoisjohngalt]

A hypothetical (for now) question:

if you and your spouse have cc debt and house with a mortgage and you both die, would the "estate" or the person who inherent the house have to sell the house to satisfy the mortgage and then, if anything is left over, cc debt?

Or will cc debt will pretty much be un-paid and house with the mortgage be treated completely separately?

Lena

[Deleted]

It depends.

When you settle an estate theres something called order of priority which basically means that some debts get higher priority than others. Here's a rough break-down and it may vary from State to State.

Generally speaking the probate court and administrator(s) get paid 1st.
Then taxes
Then secured debts (against the property(ies)
Then everyone else (unsecured creditors)

Almost 3 years ago I went through the experience of being the Trustee of my mother's estate which was negative $400k. This was mostly due to her home value dropping like a stone after she took out an enormous HELOC (of $300k). But there were also back Federal Taxes to pay, a car loan and three CCs totaling over $100k.

[Deleted]

bottom line is that if the estate of deceased has enough assets to cover all of the debts of the deceased, then those debts will have to paid off.

[whoisjohngalt]

Thanks.

But I wonder if "estate" can be forced to sell the house or not to cover unsecured debt, i.e. credit cards.

Lena

[thyme4change]

It probably has something to do with how the house is titled.

[Deleted]

Practically speaking I think it has something to do with whether it's worth it for the CCs to sue and file a lien which would show up on a title search.

[swamp]

Jan 6, 2011 11:21:35 GMT -5 thyme4change said:

It probably has something to do with how the house is titled.

It does. If the house and bank accounts are jointly owned by Husband and Wife, wife dies, the assets go to husband free of any claim by wife's creditors. At least in NY it does.

[whoisjohngalt]

So, here is the thing: my IL's don't have a penny to their name, they just went through a good chunk of money they inherited and still have nothing to show for it. They have a house that they bought 30 yrs ago that still have about 23 yrs of mortgage left on it. We used to send them money monthly, but we just can't afford it anymore and frankly, I don't want to keep supporting them. They have no one else they can ask for money.

They are leaving the house to their DD. So, I am wondering, if they get cc right now and die without paying it off, would the DD be forced to sell the house to cover any debt. I really don't care about the house bc it's nothing but a that will cost more to make it "nice" than it's valued at. But my DH is very attached to that house, so I was just wondering.

Lena

[swamp]

Jan 6, 2011 11:25:11 GMT -5 @bonnap said:

Practically speaking I think it has something to do with whether it's worth it for the CCs to sue and file a lien which would show up on a title search.

If they sue, they have to sue the estate, which has no assets. It won't show up on the title search because by operation of law, the house passes to the surviving spouse upon the other spouses death. The estate has no interest in teh house.

[swamp]

Jan 6, 2011 11:28:04 GMT -5 whoisjohngalt said:

So, here is the thing: my IL's don't have a penny to their name, they just went through a good chunk of money they inherited and still have nothing to show for it. They have a house that they bought 30 yrs ago that still have about 23 yrs of mortgage left on it. We used to send them money monthly, but we just can't afford it anymore and frankly, I don't want to keep supporting them. They have no one else they can ask for money.

They are leaving the house to their DD. So, I am wondering, if they get cc right now and die without paying it off, would the DD be forced to sell the house to cover any debt. I really don't care about the house bc it's nothing but a that will cost more to make it "nice" than it's valued at. But my DH is very attached to that house, so I was just wondering.

Lena

That's different. If there is a lien from when they are alive and we're talking about DD inheriting, the debts will have to be paid. I thought you were discussing inheritences/debts between spouses only.

I know your DH is attached to the house, but he's going to have to let go. People spend thousands of dollars trying to "save" the family homestead to their own detriment.

Home is memories, not a building.

[quotequeen]

Jan 6, 2011 11:28:08 GMT -5 swamp said:

Jan 6, 2011 11:25:11 GMT -5 @bonnap said:

Practically speaking I think it has something to do with whether it's worth it for the CCs to sue and file a lien which would show up on a title search.

If they sue, they have to sue the estate, which has no assets. It won't show up on the title search because by operation of law, the house passes to the surviving spouse upon the other spouses death. The estate has no interest in teh house.

But the OP is asking about what happens when both spouses die.

[swamp]

Jan 6, 2011 11:30:47 GMT -5 quotequeen said:

Jan 6, 2011 11:28:08 GMT -5 swamp said:

If they sue, they have to sue the estate, which has no assets. It won't show up on the title search because by operation of law, the house passes to the surviving spouse upon the other spouses death. The estate has no interest in teh house.

But the OP is asking about what happens when both spouses die.

The house would have to be sold to pay the debt unless someone ponies up some cash to pay the debts.

ETA: Sorry, I completely missed part of the questions above. I had a crying kid during the middle of the night, so my head is up my butt today.

[thyme4change]

I mis-read the OP too. I thought you were asking if one spouse had to sell the house to cover the dead spouse's CC debt. I was going to make a bunch of jokes about you having credit card debt. But now the whole thing makes more sense.

And I don't know the answer. I'm sorry your husband is attached to a debt-ridden .

[Deleted]

Lena,

This where you have to back off and let the chips fall where they do.

Both my parents and brother are/were financial train wrecks. I've posted about them before. When it comes to the remaining parent's death, your DH will just have to decide whether the emotional value of owning the house is worth taking over the debt.

Last year my brother lost the family house via foreclosure...finally. My folks bought it in 1963. Taxes, because of CA prop 13 were only $700/yr, and the estimated value of the house is about $500,000!

But both my folks and then my brother (who basically took over payments in 1997 when my folks split) used the house as an ATM.

Yes, DH and I could have afforded to buy the house at auction. But it was a mess; lots of termite damage because nothing was checked for those nearly 50 years; half-assed repairs, bad remodeling, serious code violations et cetera. I estimated that to fix that house would cost over $100k-sad, but not worth it.

[swamp]

"This where you have to back off and let the chips fall where they do."

Bingo.

[jennml]

This probably doesn't apply in your scenario but Child Support is also a non-dischargeable debt and I believe takes precedence over everything except maybe IRS debt. I don't think you can transfer a property if there are unpaid liens. No matter what a Will states. Someone would have to assume the debt. Although I'm sure there's some sort of loophole.

[swamp]

Jan 6, 2011 11:48:40 GMT -5 @jennml said:

This probably doesn't apply in your scenario but Child Support is also a non-dischargeable debt and I believe takes precedence over everything except maybe IRS debt. I don't think you can transfer a property if there are unpaid liens. No matter what a Will states. Someone would have to assume the debt. Although I'm sure there's some sort of loophole.

.

No, there really isn't. If there is a judgment on a property, it has to be paid before the transfer takes place, otherwise the buyer takes title subject to the lien.

However, if there aren't judgments, the money owed is only estate bills, the property can be sold for fair market value and if the debts exceed the assets, the debts get paid pro rata. There really isn't any way around it. Sometimes the debts don't get paid because the assets are nonexistant or worthless or worth next to nothing, but nobody gets to take an asset without paying FMV for it.

[Savoir Faire-Demogague in NJ]

Maybe someone can correct me here, but CC debt is unsecured debt for a reason. Creditors can try going after the surviving spouse or relatives but they are SOL in the final analysis.

[swamp]

Jan 6, 2011 11:54:04 GMT -5 Savoir Faire-Demogague in NJ said:

Maybe someone can correct me here, but CC debt is unsecured debt for a reason. Creditors can try going after the surviving spouse or relatives but they are SOL in the final analysis.

That is partially correct. If a spouse dies with a credit card debt solely in their own name the credit card company cannot collect the debt from the surviving spouse, and jointly owned assets pass to the surviving spouse free of any claim from the credit card company.

[jennml]

Jan 6, 2011 11:52:16 GMT -5 swamp said:

No, there really isn't. If there is a judgment on a property, it has to be paid before the transfer takes place, otherwise the buyer takes title subject to the lien.

Good. I wasn't 100% sure since people do weird things like gift things away or donate them to a charity to protect assets from the IRS. But I suppose it makes sense since you can't gift something that isn't 100% yours.

[The J]

Jan 6, 2011 11:54:04 GMT -5 Savoir Faire-Demogague in NJ said:

Maybe someone can correct me here, but CC debt is unsecured debt for a reason. Creditors can try going after the surviving spouse or relatives but they are SOL in the final analysis.

You're wrong in this case, assuming there's no surviving spouse. The house becomes part of the estate. The estate becomes liable for all debts. The CC company can put a claim against the estate.

[swamp]

Jan 6, 2011 11:56:54 GMT -5 @jennml said:

Jan 6, 2011 11:52:16 GMT -5 swamp said:

No, there really isn't. If there is a judgment on a property, it has to be paid before the transfer takes place, otherwise the buyer takes title subject to the lien.

Good. I wasn't 100% sure since people do weird things like gift things away or donate them to a charity to protect assets from the IRS. But I suppose it makes sense since you can't gift something that isn't 100% yours.

That's why you do title searches when you transfer real property. You can transfer it with a lien, but the new owner is usually pretty upset to learn about the lien.

[Savoir Faire-Demogague in NJ]

I was referring to a CC held in the name of only one spouse.

[swamp]

Jan 6, 2011 12:05:14 GMT -5 Savoir Faire-Demogague in NJ said:

I was referring to a CC held in the name of only one spouse.

The answer depends on whether their is a surviving spouse and how assets are titled. Joint accounts between parent and child can be off limits to creditors too.

[Deleted]

The other side of the coin was settling my mother's Trust. It took me about 2 years (about 1 year was a part time job). Her condo is located within walking distance of San Diego's best beach. It took about 6 months to negotiate with her 2nd and I had to let the condo start the foreclosure process. I wrote to all the creditors explaining the situation. The CCs turned the debt over to collection agencies.

During that six months I did a voluntary repo of her car. Subsequently, I was surprised to find out that the Feds never filed a lien for the unpaid taxes and there is a statue of limitation for collecting the debt. So 25k aged off 4 months after her death. The remaining 15k was set to age off in another year so I kept making the payments on her payment plan to avoid defaulting which could have triggered a lien. Once I negotiated the deal with the 2nd, I rented the condo (it cash flows) and I paid the back payments on the 1st with a personal loan to the estate secured by her rental property. I then sold the little rental property and paid DH and myself back. After paying off the loan there was basically nothing left to pay the CCs. The CCs issued their 1099cs the end of 2009. I then transferred title of the condo to DH and me.

That was a lot of work and time for a risky investment. My other option was to not assume the Trusteeship, let both properties go into foreclosure and let the creditors duke it out amongst themselves. I think I did the right thing by settling with the parties that I could. And I think I did ok for myself as last year it appeared that the property recovered some of its value by over $100k. Stay tuned!

[whoisjohngalt]

Another ironic thing about this whole mess is that my DH is names as an executor of this estate. My DH has many many many wonderful qualities, but money-handling is not one of them. He will probably want me to do this whole thing and it just won't be pretty.

Any of you who know any of my philosophies, know who big I am on personal responsibility, but I just can't take it anymore - supporting my IL's. They haven't gotten any new ccs after their last (3rd) BK, and I am getting really close to suggesting that they should, instead of using us as ATM. It's very hard for me, bc I KNOW they won't pay them back and it goes against my very core

Lena

[Deleted]

Lena,

The thing is you don't know what's going to happen so there's no point worrying about it. In my example, had my mother died 2 years earlier, both of her properties would have sold for nearly $600k more. All creditors would have been satisfied and my brother and I would have been splitting $50k each.

You need to come to an agreement with your DH to stop supporting his parents who live beyond their means. That's all you can control. They may have some other options, such as getting a reverse mortgage, part time job or, as you fear charging up credit cards. But that's their decision not yours.

[swamp]

And just because your DH is named exec, doesn't mean he has to accept it. He can renounce and let the someone else do it.

[CarolinaKat]

This is my first time actually posting over here on YM so forgive my basic question:

If the estate has no other debts, does a mortgage transfer to the beneficiary along with ownership of the property? Can they keep paying off the existing loan, in other words.

[Deleted]

Most properties can convey to a family member without triggering the "Due on Transfer" clause because of the passage of the Garn St. Germain law.

Here's the link:http://www.law.cornell.edu/uscode/12/usc_sec_12_00001701---j003-.html

Scroll down to D. 5

A notable exception is a private loan.

You don't have to qualify, you don't have to give them your SS number and you don't have to let them report the loan to your credit report although be prepared for the bank to come up with some great stories including paying hundreds of dollars for "transfer" fees!