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Surviving Spouse Question
Old 02-11-2015, 08:29 AM   #1
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Surviving Spouse Question

I have a question regarding a survivng spouse.
If a couple has joint outstanding debts at the time one of them passes away and after funeral expenses are paid, can debtors come after the estate or remaining life insurance proceeds. If so, whats the best way to protect the surviving spouse's limited resourses. Let's assume there are no other funds such as 401k or a house.
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Old 02-11-2015, 08:34 AM   #2
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If there are joint debts, the surviving spouse is liable for all of the debt. It doesn't matter how the assets are transferred to the surviving spouse. If life insurance pays to someone else other than the surviving spouse, that money is safe from the creditors.
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Old 02-11-2015, 03:46 PM   #3
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I agree with previous response. Just had this discussion with our attorney

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Old 02-12-2015, 09:11 AM   #4
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What if the debt isn't in the surviving spouse name ?
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Old 02-12-2015, 10:48 AM   #5
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Either the debt is 'joint' as you first said or it 'isn't in the surviving spouse's name'. Even if it only in the deceased person's name, the creditor would be able to claim from the estate. Only if there ends up being insufficient money in the estate will the debt be written off.

By the way, the creditor gets paid from the estate and has first right to payment. The funeral home is not a creditor with a claim on the estate. So the debts get paid first and then the remaining spouse owes for the funeral costs. Even if debts were written off because there was insufficient money in the estate to pay them, the funeral costs still have to be paid by someone. That debt has nothing to do with the deceased person. So you have got it backwards when you write, "after funeral expenses are paid, can debtors come after the estate or remaining life insurance proceeds." The creditors (not debtors) come first, not the funeral home.

As always with legal advice, a forum such as this one is not the place to get a definitive answer. Consult a lawyer.
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Old 02-12-2015, 11:05 PM   #6
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Specify the spouse as beneficiary on all insurance policies by name. Don't leave the beneficiary blank or to "the estate".
Reason being, a life insurance policy is paid to the beneficiary if one is named, so it bypasses the estate.

Example: I can die owing $33,000 in credit card and car loans in my name only.
My life insurance policy of $250,000 has DW named as beneficiary, so insurance company cuts her a check.
Credit card companies come after the $33,000 and can get my bank account in my name and my car.
DW pays the funeral home, and takes the rest of the $250,000 and goes on trips.
Credit card company writes off the rest of the remaining UNcollectable debt.

Make sure you also specify beneficiaries on IRA/401K/ROTH accounts as well.
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Old 02-13-2015, 10:03 AM   #7
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That's fine as long as it isn't joint debt Sunset. Joint credit card accounts and joint car loans, she'll have to pay up. That's what the OP first asked about, 'joint debt'.

Anyway, why would an early retiree have credit card and car loan debt in the first place?
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Old 02-13-2015, 10:32 AM   #8
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Anyway, why would an early retiree have credit card and car loan debt in the first place?
I think a number of folks in this forum have debt in retirement. ER doesn't necessarily imply being debt-free IMO. As long as debt service is part of one's financial planning in "retirement" its not a bad thing.

It's not in my ER planning, but I certainly can acquire debt in retirement (if necessary) without any significant impact on my financial life. I wouldn't hold it for long, but that's just my personal preference.

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Old 02-14-2015, 11:44 AM   #9
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Different outlook Beldar. I stopped having debt (other than a mortage) in my 20s. By age 40, I had no mortgage either. Debt simply costs you money and is always a bad thing IMO.

Someone might suggest that they can invest the capital rather than say buy a house for cash, and make more on the investment than they lose on paying interest on the debt. Maybe, maybe not. What is certain is that there is ALWAYS some risk on any investment. There is no risk if you own a house outright. It will always provide a roof over your head.

The only debt I might consider is one I saw a little humourous news item on TV on recently. A woman in her late 70s had just got a new car with 7 years of 0% interest financing. She quipped, 'I might be dead before I pay it off'.

But then, she might leave someone like the OP of this thread, holding the bag to pay it off.
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Old 02-14-2015, 12:11 PM   #10
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Either the debt is 'joint' as you first said or it 'isn't in the surviving spouse's name'. Even if it only in the deceased person's name, the creditor would be able to claim from the estate. Only if there ends up being insufficient money in the estate will the debt be written off.

By the way, the creditor gets paid from the estate and has first right to payment. The funeral home is not a creditor with a claim on the estate. So the debts get paid first and then the remaining spouse owes for the funeral costs. Even if debts were written off because there was insufficient money in the estate to pay them, the funeral costs still have to be paid by someone. That debt has nothing to do with the deceased person. So you have got it backwards when you write, "after funeral expenses are paid, can debtors come after the estate or remaining life insurance proceeds." The creditors (not debtors) come first, not the funeral home.

As always with legal advice, a forum such as this one is not the place to get a definitive answer. Consult a lawyer.
Actually it is the living person who signs the document authorizing the funeral at the funeral home who pays the bill. Often it will be the surviving spouse but need not be.
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Old 02-14-2015, 12:47 PM   #11
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Yes that is what I was trying to explain to the OP meierlde. The OP wrote, "after funeral expenses are paid". That seemed to indicate that the OP thought the funeral expenses could be paid out of the estate BEFORE the outstanding debts were settled. That of course is not the case.

The funeral expense is a NEW debt incurred by whoever signs as you say. It has nothing to do with the estate and has no claim on the estate.
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Old 02-15-2015, 12:07 AM   #12
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At the time my mother went into a nursing home I bought a prepaid funeral plan. So it was all paid for. I as the POA was trying to spend down some of her money in case she ran out of assets and needed to go on Medicaid since a prepaid funeral is exempt from being counted as a Medicaid asset. Unfortunately she died about 6 months later. She had no debt.

If there are assets to pay for it and the person is elderly a prepaid funeral plan is not a bad idea imho.

The 60 year old brother of a friend on mine died and he had exhausted all his assets after a job loss. My friend put the funeral expenses on a credit card. Sad.


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Old 02-15-2015, 02:46 PM   #13
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At the time my mother went into a nursing home I bought a prepaid funeral plan. So it was all paid for.
We did the same with FIL when he went in to a nursing home. At that time we were working with the elder law attorney and that was one of the suggestions. When he passed the arrangements were made and paid for.

There are times when a prepaid funeral is a good idea. When there is a lot of uncertainty about when and where then it is not a good idea.
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