What a silly title.if you’re dead, who cares? Dead people are beyond the cares of this world. So, let’s get silly.
It’d be great if your debts died with you.
Imagine this: You know you are terminally ill and there’s nothing but agony ahead. You have great credit and every kind of credit card imaginable. Max them out by living high on the hog for as long as you’re well enough to enjoy life and by buying everything your family and friends could ever want or need.
Liquidate your investments and mortgage your house to the hilt and continue the buying spree.
Buy yourself a new car on a no down payment basis so you can drive around in style. Give away all your personal belongings.
Liquidate your IRA and 401K just keep spending on everyone you like.
Borrow as much as you can against the cash value in your life insurance. Buy your girlfriend that diamond choker she always wanted.
While you’re at it, go ahead and co-sign loans for all those “friends” who’ve been asking you to co-sign.
When all the money is spent, all your personal belongings have been given away and the pain of your final illness has become too much, just take a long stroll on the short side of a tall building.
Everyone at your funeral will love you for all the nice gifts you gave them.
But it doesn’t work that way. Your debts survive you. You may be dead but your estate has just been born and it owes all your debts.
Now it does make a difference if you are not leaving behind a spouse with or without dependent children. If not, by all means, go ahead and do what appears above. It won’t matter. But if you are leaving behind a spouse it makes a big difference.
The first issue is that any and all insurance contracts be they: whole life, term life or credit life have something known as an incontestability clause. That means that any coverage is void if your suicide was committed within two years of the insurance becoming effective.
Insurance coverage is reduced by loans against the policy. So your estate, if it is the beneficiary, will receive the policy values less the amount of the loans.
If you have a spouse and said spouse is living in that house and can’t make the new payments he or she is going to have to move.
If you have a spouse you really screwed up by cashing in the IRA and 401K because that could have passed to your spouse’s IRA without any tax consequence. If you were under fifty-nine and one half years of age your estate will take a 10% surtax penalty on the amount withdrawn from the IRA and 401K.
Oh and those co-signed debts they remain residual contingent obligations against your estate too.
But if you don’t have a spouse the executor of your estate won’t care. You made the executor’s job a whole lot easier. He or she doesn’t even have to worry about bequests.