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What Happens to Your Debt When You Die?

And How to Ensure that Your Loved Ones are Protected from Creditors Should the Worst Happen to You

When we ask our clients about their estate planning goals, the most common response we hear is that they want to have an estate plan in place not for their own peace of mind, but for that of their loved ones. So many of us have experienced grief firsthand and perhaps even have been responsible for managing the affairs of a recently deceased loved one. When those affairs are not pre-planned it can add stress, frustration, and anxiety on top of handling feelings of grief.

This is why working with an estate planner can save your loved one’s hours and hours of stress on top of handling the emotions that already accompany loss. Estate planners strive to avoid probate if at all possible. Some strategies involve creating a revocable living trust and setting up assets to go into the trust upon death so that probate never needs to be opened.

But what happens to those pesky credit cards and loans when you pass away even if you do have an estate plan in place? Do they just disappear? Are your beneficiaries required to pay them on your behalf?

If, for example, a recently deceased loved one with revocable living trust in place passes away and all of the assets are set up to go into the trust, what happens to their credit card debt?

The answer in Colorado is that, even if probate is never opened, creditors can usually legally make a claim again the deceased's estate, even if those assets have already been transferred. Assets that are set to avoid probate constitute what is known, legally, as a "nonprobate transfer."

Under a Colorado law, the recipient of a nonprobate transfer is liable to the creditor for certain allowed claims against the deceased’s estate. However, certain nonprobate transfer assets are protected from creditor claims, including real property that is owned in joint tenancy and some accounts with beneficiary designations.

If you have questions about estate planning, debt after death, or how to shield your loved ones from potential creditors, Scarola Law is here to help. Schedule your free consultation today!


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