If you die, who pays your debts?

Question

Like, if you die and you've got children, do they pay for it?

I was thinking...couldn't it technically be extortion if you being an elderly citizen take out a reverse mortgage on your house and blow all the money. Then, when you die, you'll have no money and no equity in your house. Are your children stuck with the debt?

Answer 1

your estate (money, equity and insurance) pays your debt, not your kids. Therefore, if you blow your entire estate, the debt will not get paid or if there is only enough to pay some or all the debt the creditors will get it and the kids will have to pay final expenses out of their own pockets (funeral, etc) and that's where they get screwed.

Answer 2

The short answer on this is that your estate would be responsible for paying-off all of your debts. Your estate would consist of all of your assets (including savings, investments, real estate, and other assets). When you die, assuming that you either have a will or don't have a will (or any other type of estate trusts), an "executor" would be appointed to "discharge" all of your debts (including potential estate taxes), and distribute any remaining assets to your heirs. This process of "settling" your estate is called Probate. You may have heard about "living" trusts. One of the chief advantages of a living trust, is that you can avoid the probate process.

In the case of a reverse mortgage, at the person's death, the bank would be holding a lien against the property in the amount of the unpaid loan. The heirs, in concert with the probate court, the executor, and the bank, would settle this loan when the person dies. That would typically involve the heir(s) refinancing the loan in order to pay-off the reverse mortgage. Naturally, the heirs could refuse to accept such an arrangement, in which case the property would go into foreclosure, and would eventually be sold-off by the bank.

The fact that the mortgage was a "reverse" mortgage, versus a traditional mortgage, would not really make any difference. I was just recently involved in a situation, where a person passed away, and left her home, which had a fairly sizeable mortgage, to her four children. The situation was worked out, with one of the children agreeing to take the home. She refinanced it, so that the proceeds paid off the original mortgage, as well as paid off the share of the home (less the share of the mortgage) that corresponded to each of the three other siblings. It ended up working out very well for each of them.

I hope this helps.

Answer 3

with a reverse mortgage the debt is paid for by the house. The lender sells the house to satisfy the debt. The children are only "stuck" with having less inheritance, they pay nothing out of pocket.

Answer 4

Your Estate pays your debts when you die. If your have no assets nothing is paid from your estate. But, no one else is responsible for your debts. Last I hear this was the law in Texas. This is my understanding but I am not a lawyer. I hope a lawyer responds to this because it is a legal question and a guess is not good enough.

Answer 5

technically, it all depends on how you set things up. it is possible to have an insurance policy on most debts that will pay them off in the event of your death- but some places do not offer that- or you can't get it after a certain age. in that case, your heirs are liable for those debts, yes. and in most cases, those debts would come from your estate or life insurance policy prior to that money being distributed to heirs.

Answer 6

Your estate pays the debts, provided there is any money---life insurance, etc..

Answer 7

if you have life insurance your children will not get all the debt so just plan your life out and invest smartly and your children should be fine

Answer 8

if you live in Florida and die with a house payment ...who pays it?

Answer 9

Depends on where you live.