What happens to your debt after you die?

One question I get often from clients is, What happens to my debt after I die? Great question – but before we delve into the answers, I wanted to share with you three opportunities in June to attend a seminar I’m hosting with Round Table Wealth Management titled: Trump: Time to Update Your Investment & Estate Plan, But How? On June 7, I’ll be presenting in Scotch Plains, on June 8 in Red Bank, and on June 13 in Princeton. Please email me if you’d like to attend and I’ll send you an invitation! Our first seminar in Franklin Lakes was a great success!

 

Back to our regularly scheduled programming: Debt. While you ponder your mortality from time and time and think about the distribution of your assets, have you thought about what will happen to your outstanding debt?

In the past we have written about the need to appoint an executor you trust who will administer your estate in the most efficient way possible. One of the responsibilities of your executor is to take care of your outstanding debt. This is done by using the assets and property you leave behind to cover the balance. It some cases, this may require liquidation of property. Whatever is left over after your debts have been paid may then be distributed among your heirs.

Consider the following types of debt and what happens to it when you die:

  • Student loans — Federal loans are discharged upon death. Private loans, however, are not. In some rare cases, a private loan company may issue debt forgiveness, but it is unlikely. If you pass away with private student loan debt, the balance will attempt to be collected from your remaining assets and estate. Should your estate fail to cover the cost, the private loan company will then attempt to collect the debt from your spouse.
  • Credit card — If you are the sole owner of the credit card debt, then the credit card company will attempt to collect the balance from your estate. Should you have a joint credit card account, the co-signor of the account will be responsible for the outstanding debt.
  • Medical debt — In the event that you have medical debt, the funds from your estate will be used by your executor to cover the cost. Another person may take on the responsibility of your medical debt if they signed legal documents agreeing to do so. In the event that your estate is unable to pay off your medical debt, it will not be inherited by your heirs.

When drafting your estate plan, it is always a good idea to try and reduce the debt you owe by as much as possible, especially if you want to leave substantial property or assets to your loved ones. Any debt you accrue while you’re alive may deprive your family of the inheritance you intended for them to enjoy.

Whether you need help setting up a trust, probating a will or creating a detailed estate plan, be sure to consult with a skilled attorney. To discuss your estate planning matter with us, contact Alec Borenstein, Esq., a partner with the firm at alec@bmcestateplanning.com or call 908-236-6457 today.

Jersey… Wrong? Exodus of the Millennials

NJ Inheritance Tax

In the past, much has been written about retirees leaving New Jersey in record numbers for multiple reasons — estate tax, inheritance tax, cost of living, population density, weather, and even marijuana legalization. However, now in 2016, it is millennials — that is, individuals between the ages of 18 and 34 — who are leaving the Garden State en masse.

Recently, the New Jersey Business & Industry Association released a report that showed the out-migration of around 2 million N.J. residents between 2004 and 2013 which has cost the state $18 billion in net adjusted gross income. The report goes on to explain that during those eight years in question, the state lost the following potential revenue:

  • $8.4 billion in household spending
  • $11.4 billion in economic output
  • 75,000 jobs
  • $4 billion in total lost labor income.

So, where are young New Jerseyans moving to start families, settle down and retire? Not very far it turns out. In fact, the majority of N.J. residents exiting the state are looking for homes in Pennsylvania and New York. This allows millennials to live comfortably out-of-state while still being able to work and visit friends and family in N.J.

From an estate planning perspective, it makes a lot of sense. Even though Governor Christie called for a repeal of N.J.’s estate tax in a January address, the fact remains that N.J. currently has an estate tax AND an inheritance tax. N.J. also has the lowest estate tax exemption — $675,000. Although P.A. has an inheritance tax, the rate is low (4.5 percent for those who die after 2000) in comparison to N.J.’s 11-16 percent.

In addition, N.Y. is in the process of raising its estate tax exemption limit to match the federal exemption of $5.9 million by 2019.  Unless New Jersey changes its estate and inheritance tax, it seems likely that the exodus will continue, especially when affordable living is just across the border and within an hour of friends and family.

If you are thinking about your estate plan, it’s a good idea to speak to a lawyer. For N.J. and N.Y. residents seeking counsel on wills, trusts and other aspects of estate planning, contact Alec Borenstein, Esq., at alec@bmcestateplanning.com, or call 908-236-6457.

By at .