Generally, the answer is “no,” with a few exceptions. First, I will explain what happens to your debts when you die. After that, I will cover the few exceptions to the rule for surviving spouses in Minnesota.
What happens to my debt when I die?
The answer to this question ultimately depends on how many assets you have when you die. When you die, your assets and debts become part of an estate. Whether you have a willed or probated estate, the estate consists of the assets you own and the debts you owe when you pass.
The estate is assigned someone to handle its finances. Depending on the type of estate, this person is often called a personal representative or executor. I will refer to them as executors to keep things simple. The executor’s job is to transfer the assets of the deceased person’s estate pursuant to either a will or the probate laws of Minnesota if there is no will.
In administering the assets, they also need to consider the debts of the deceased person’s estate. Before they can sell, transfer, or dispose of any estate assets, they must use them to pay any of the deceased person's debts.
Non-probate assets, such as those with joint owners, beneficiary designations, or pay-on-death/transfer-on-death designations, pass to intended beneficiaries outside of probate. Handling non-probate assets varies from probate assets and has different implications in estate administration.
If you have no assets when you pass, there is no estate to administer and none of the debts get paid. If your debts exceed the value of your assets, then the executor must use what assets there are to pay as much debt as possible. The debt is then unpaid and “dies” with the deceased person. If there are more assets than debts, the assets first pay the debts and then the remaining assets are administered pursuant to the will or Minnesota probate laws.
Will my surviving spouse have to pay any of my medical debt?
No, your surviving spouse will not be automatically liable for any of your debts outside of the estate process, unless they fall into one of the following narrow exceptions:
Exception 1: Co-signer/Joint Debt Obligations and Spousal Liability
If your spouse co-signed with you on a debt (think mortgage or car loan), or you were a joint owner on a debt together (think tax debt or credit card), you both owe the debt jointly and severally. That means you both owe the full amount as an individual. You don’t each owe half, but rather, you both owe the whole thing. If one party dies, the other party still owes the whole thing because it is also their debt. This is why it is always best to avoid coming into debt and/or co-signing on anything.
Exception 2: Minnesota State Law
Under state law in Minnesota, two types of debts are jointly and severally owed by spouses. These debts are medical debts and “necessary household articles and supplies furnished to and used by the family.”
For medical debt, both spouses are liable if they lived together and were married when one of the spouses incurred the debt. This includes liability for medical services received by the deceased patient, both before and after the death of one spouse. Any medical debt incurred before marriage or while not living together would not be liable by both spouses.
For necessary medical services and household articles and supplies, the same rules apply as medical debt, but it applies to debt incurred for only household items purchased for the benefit of both spouses. If one spouse purchases something that fits into this category but isn’t used or consumed in the joint household, it does not fit within this exception.
The Role of Life Insurance in Debt Repayment
Life insurance can protect your loved ones from your debts after your passing. If you have a life insurance policy with your spouse as the beneficiary, the death benefit can be used to pay off any outstanding debts, ensuring they are not burdened with your financial obligations. Reviewing your life insurance coverage regularly and ensuring it aligns with your current debts and financial goals is important.
Protecting Your Assets with Estate Planning
Estate planning can also help safeguard your assets and ensure your wishes are fulfilled after you're gone. By creating a will or trust, you can specify how your assets will be distributed and potentially shield them from creditors. A comprehensive estate plan can also include provisions for guardianship, healthcare directives, and power of attorney, providing peace of mind for you and your family.
Addressing Debt Concerns Before It's Too Late
If you're worried about the impact your debts could have on your loved ones after your passing, it's never too early to start planning. By seeking professional advice from a financial advisor or estate planning attorney, you can develop a proactive strategy to manage your debts, protect your assets, and secure your family's financial future. Taking action now can prevent unnecessary stress and hardship for your loved ones.
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