Passing debt to another person if you die is a good reason to have life insurance. The payout allows survivors to pay off bills that might otherwise create financial disaster. But exactly which debts can become the burden of others?

 

Debts that others inherit

 

Credit card debt

Does it die with you? No.

Who inherits the debt? A joint account holder or your estate.

Anyone who's a joint account holder on credit cards -- such as a spouse -- will still be responsible for the debt, even if they didn't personally make the charges. People who are simply "authorized users" on a credit card do not inherit the debt.

If there's no joint account holder, the debt will need to be paid out of your estate. And if you have no estate, or the estate runs out of funds, credit card companies generally have to eat the balance.

In a state with a community property law, debt run up by only one spouse could pass to the other. Because these community-property state laws vary, check with an attorney to see if you're responsible for a spouse's debt before assuming you're on the hook.

States with community-property laws
  • Alaska (optional; spouses can opt-in)
  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

Student loan debt

Does it die with you? It depends. Only federal student loans and certain private loans are discharged upon death.

Who inherits the debt? Co-signers, a spouse (in a community property state) or your estate.

A federal student loan is discharged (meaning forgiven) upon the death of the student. If a student's parent took out a federal PLUS loan, that debt is discharged upon the death of either the student or the parent. Here's more from the U.S. Department of Education.

Some providers of private student loans, such as Discover and Sallie Mae, forgive the debt if the student dies.

If you are co-signor on a private student loan that's not discharged, you are responsible for the debt if the student dies.

A spouse is responsible for undischarged private student loan debt if you live in a community-property state and the student took out the loan during marriage.

A mortgage

Does it die with you? No.

Who inherits the debt? A joint homeowner or your estate.

A joint homeowner will inherit mortgage debt. If there's no joint homeowner, the mortgage can be paid out of the estate.

If you inherit a house, you can take over the mortgage.

A federal law known as Garn-St. Germain prohibits lenders from demanding immediate payment of a full mortgage balance when a house title is transferred to a co-owner or heir.

A car loan

Does it die with you? No.

Who inherits the debt? Your estate or whoever wants the car.

A car loan balance can be paid from your estate. Because a car loan is a "secured loan," if payments stop the lender could repossess the car.

If an heir wants the car, they can usually contact the lender and say they want to continue the payments, and the car title can be transferred to them from the estate.

Make sure to keep auto insurance on the vehicle while loan payments are being worked out. And if you take over title to a car, you'll need to get the insurance in your name, too.