‘Til death do us part?
Credit card debt can live on after a loved one’s passing – here’s what to do
We can all agree that families have plenty to deal with following the death of a member. There are funeral plans, mortgages, taxes and insurance issues, upkeep on properties, investment inventories, Social Security regulations, and this is all in addition to the emotional toll of the loss. Credit cards are probably at the bottom of the list of immediate concerns. But be careful – the road to managing and resolving the credit card debt of a deceased family member is full of potholes. Here are a few ideas on how to navigate this sensitive time while avoiding legal and moral risk.
#1 Define the scope
How many outstanding credit cards exist, and what are the current balances? If only a few hundred dollars are owed to one or more companies, then that is a far different situation compared to if someone was maxed out on several credit cards. One question to ask is this – will the estate be large enough to easily pay these balances out of current cash, or will asset sales be needed?
#2 Notify the credit card companies
Notifying the banks holding the debt will address several potential issues. First, the accounts will likely be frozen or closed, preventing any further use by other family members. Second, freezing the accounts will prevent the possibility of fraud (some shady folks use death notices for this purpose). To do this, you will need to obtain a dozen or so death certificates early in this process, as the companies will want these as proof after being notified. It is best to send these by certified mail so you can prove receipt.
#3 Notify the three credit bureaus
Once you have locked up existing accounts, you will need to prevent any new accounts from being opened in the name of the deceased. Call Equifax, Experian and TransUnion and request they flag the person as deceased, so no one will ever be able to open new credit in their name.
So what about those outstanding balances?
This is where it can get a little tricky. Many parents and spouses add others to their credit accounts as “authorized users.” Generally, authorized users are never liable for the balances owed on the card(s). However, sometimes those same individuals are added as joint accountholders – in this case, the debt is usually viewed as being owed by both accountholders. In this case, you could be on the hook for the whole balance even if none of the charges benefitted you in any way. It’s also possible you were never asked about being a joint owner on the account (yet another good reason to check your credit reports annually, as new accounts would be obvious).
It’s possible that you might get the estate to pay this debt for you (as a joint owner), but under the law, they have no obligation to do so.
A few other common traps to avoid
It may be tempting to use the card of your deceased relative for small purchases, even items related to the funeral, home repairs or expenses related to the deceased. Don’t do it. Even using the card as an authorized user can be construed as fraud. In the eyes of the credit card company, the rules changed with the death of the “primary” user. That person’s credit data was used to offer credit terms and continue the credit relationship – once that person is no longer part of the calculation the company would need to reevaluate the terms.
The flip side of the situation above is if you, as the authorized user, decided to pay the outstanding credit card balance with the expectation of being reimbursed by the estate. Again, don’t do it. Credit card debt is unsecured, and the card issuers are at the end of the line that forms to receive disbursements from the estate. If you pay off a credit card balance for someone else, then you become the new end of the line.
And keep an eye out for auto-payments. It’s very convenient to set up these payments to avoid credit card late fees, etc, but after the account owner passes these need to be stopped. Chances are, once you alert the company (see #2) they will stop these, but you should be sure.
Beneficiaries at risk
Keep in mind that with the passing of a family member, there may be the expectation among the related survivors that certain funds or assets will be distributed among them. Anyone that makes improper financial decisions pertaining to the estate is at moral and legal risk. These decisions could be viewed by others as morally wrong or self-serving, and cause a break in the family unit. Or even worse, these decisions could be viewed as fraud and grounds for a suit to recover the funds for the estate. Every dollar that is seen as misappropriated from the estate is one less dollar for beneficiaries and creditors, so you can see how emotions could take over in this situation.
If you have any questions about your legal obligations following the passing of a family member, please feel free to contact my office for an appointment.