Children, spouses, even distant relatives in faraway towns often expect to inherit some money when death finally claims a family member. But many are getting a big surprise after the will is read: The money is owed to creditors.
A survey of 200 Americans found that almost 40 percent of retirees are not concerned about paying off their debts during their lifetimes.
See also: Contesting a will, inheritance.
The survey by CESI Debt Solutions, a nonprofit credit counseling organization, found that 56 percent of the retirees had debts when they left the workforce, but almost none said they had delayed retirement to pay them off. In addition, 59 percent had saved less than $50,000 toward retirement.
"We have become much more comfortable with indebtedness than were our parents and grandparents," says Neil Ellington, executive vice president of CESI, which gives free credit counseling to more than 2,000 Americans per month.
Ellington cites a recent case of a 65-year-old woman who was enjoying herself after retirement: "The combination of buying things for herself, her children and her friends, along with travel and normal living expenses, added up. When her debt reached $17,000, she knew she had to do something, so she came to us for help."
Education courses taught her how to take charge of her finances and live within a budget for the first time, Ellington says.
Health care on credit
While some retirees take on debt to fund things such as a Pacific cruise they've long wanted to take, a growing number do so because they have no choice.
People are living longer, and increases in health care costs are hitting at a time when many employers are cutting back on retiree medical and pension benefits. Many older people living on fixed incomes have no way to handle unexpected expenses except by running up debts.
The CESI survey found that while many retirees charged trips and entertainment, 53 percent used their credit cards to pay for medicine, doctor visits and other medical expenses.
As for the types of retiree debt, the survey found:
- 35 percent had credit card debt.
- 30 percent had mortgage debt.
- 19 percent had auto loan debt.
- 4 percent had student loan debt.
- 11 percent had other debt.
When asked how they had spent money borrowed after retirement, more than 75 percent of those surveyed cited medical or funeral expenses. Other big categories were leisure activities (31 percent); clothing, accessories and jewelry (33 percent); and vacation and travel (39 percent).
As a result, prospective heirs often find there's nothing left for them.
Who pays the debt?
Could they be in for yet another surprise ? Could relatives be legally responsible for debts left by the departed?
"Not usually," says Frank Bartle, an attorney at the Lansdale, Pa., law firm of Dischell, Bartle & Dooley. "Generally, the deceased's estate is responsible for paying his or her debts. If there isn't enough in the estate to cover the debts, they typically go unpaid."
One exception would be a balance on a credit card jointly held by the deceased and an heir. In that case, the heir would be responsible for the debt.
"In most cases, though, debt follows the deceased," Bartle says.
So, while you may not get that inheritance you've been looking for, you won't inherit any debt either.
Also of interest: Bequeath what's in your heart. >>
William J. Lynott is an author and freelance writer who specializes in business and financial issues.