Does debt transfer to family after death?

Posted on 7 November 2021

Written by Ashvin Sharma

Many people wonder what will happen to their debts when they pass on. Does debt transfer to family after death? Will your family suddenly be accountable to pick up bills upon the death of a loved one? In fact, what actually happens to your debt after you die? It is something many of us may have wondered at some point in our lives, particularly if we are aware of the mounting bills and debt of a loved one. It is a tough time to lose someone close, and even more difficult to manage our own bills and debt let alone taking on the burden of a family member’s debt after death. In this article, we explain the ins and outs of debt in the family after death, and what you can expect to happen to debt after death.

Does debt transfer to family after death?

In short, no – the debts of your family members (no matter how close a relation) do not automatically become your debts if they pass away. In the same instance, any debts or bills you may have accrued over your lifetime will not be passed on to your loved ones following your death. So, what does happen to your debt when you die? Generally speaking, your family is not responsible for your debt after your death unless they have co-signed or personally guaranteed your debt. In this instance, they could be responsible for your debt. If you have not co-signed or guaranteed for a deceased family member’s debt, creditors can try to claim on your estate if they can prove they are owed money, including mortgages. In this scenario, the deceased’s debts must be paid out before any inheritance funds are paid out to beneficiaries. If, in fact, you have joint debts or have co-signed on a loan with somebody who has passed away, creditors will hold you accountable for any debt repayments owed.

What happens to credit card debt after death?

Wondering what happens to credit card debt after death? Who is responsible? And can you inherit credit card debt from a family member? If the deceased has credit card debt that is still due upon death, their assets or estate – including any property or savings – will first have to go towards the credit card debt before any beneficiaries are paid their inheritance proceeds. This means it is still technically their debt over any family members, unless you shared a joint account, if it was joint credit card debt or if you co-signed on the debt. Should the deceased have no assets remaining upon death, the credit card debt would be written off. That said, creditors may still try to collect. Creditors may still try their luck and threaten to pursue legal action against you. In this scenario, it is worth consulting a Licensed Insolvency Trustee for support on how to stop collection calls.

What happens to mortgage debt after death?

When wondering ‘does debt transfer to family after death?’, many people have mortgages in mind. An important point to note is that debt related to mortgages is associated with the property itself, rather than the individual that took the mortgage debt on. This means that when the mortgage holder passes away, their mortgage will be paid by either selling or refinancing the property. This is instead of having the mortgage debt transfer to a family member to inherit and make the repayments on their behalf. If, of course, the mortgage is joint with another individual, they will become responsible for maintaining the mortgage payments following the death of the mortgage owner.

What happens to tax debt after death?

Tax debt is often a lot more complicated than other debts like credit card debt or mortgages following death. This is primarily due to the powers of the Canada Revenue Agency, and the need to act quickly. If you are concerned that settling tax debt once you have passed away could involve various implications, your best course of action is to contact a Licensed Insolvency Trustee. As the only professionals in Canada legally able to file all forms of debt relief, they are well placed to advise you on your estate planning, tax debt, and insurance options for after death.

What happens to RRSPs and TFSAs after death?

Handling RRSPs and TFSAs for the deceased is much more straightforward than other finances upon death. No matter whether or not you have debts outstanding on your Registered Retirement Savings Plan (RRSP) or Tax Free Savings Account (TFSA), both will go to a designated beneficiary following your death. This is opposed to RRSPs and TSFAs going to your estate instead, unless your estate has been specified as the beneficiary.

How to avoid inheriting debt

Although typically it is difficult to inherit debt in Canada, there are of course some circumstances that go against this policy, including those who have co-signed on any debt the deceased may have owed. It is hard enough to lose a loved one, let alone having to tackle the legalities and administration associated with their debt and estate. Here are some tips to avoid receiving a debt inheritance when a family member passes away:

Do not co-sign debt, or take on joint debt

Ideally, you will not have to take on the responsibility for somebody else’s debt, but if you have to, it is smart to take out some life insurance to help pay off the debt in case of the co-signer’s death.

Be conscious of supplementary credit cards

Consider the implications of giving a loved one a credit card for their convenience as you will be responsible for repaying their credit card debt should they pass away, and it could subsequently affect your credit score.

Take out a life insurance policy

Life insurance can help you to avoid inheriting debt, as it will pay off debt in the case of co-signed debt should the co-signer unfortunately pass away. This could otherwise compromise their estate or inheritance proceeds.

Discuss finances openly

Although not exactly the topic people want to discuss, having open conversations with loved ones about debt in the instance of death can help to gain clarity on financial situations, and help you both to prepare accordingly.

Be wary of collection agencies

Creditors or collection agencies may well put pressure on the family and loved ones of the deceased to reclaim their money, despite the fact that death does not mean automatically inheriting debt. Be conscious of creditors’ actions and seek financial help to know your rights. If there is outstanding debt and no estate, send creditors a copy of the death certificate so that they can clear the debt and stop any collection calls or threats.

Ensure you and your loved ones write a will

Creating a will is one of the simplest ways to establish how you wish your assets to be allocated after death, without the government falling to default procedures. You should involve an attorney and create various copies to be easily accessed by family members.

Work on a debt repayment plan

The best way to tackle debt is to assess your finances and see how you can gain debt relief or work on repaying your debt. The sooner this is done, the better. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief, so they are a great starting point.

Speak to a Licensed Insolvency Trustee

If in doubt around debt inheritance and ‘does debt transfer to family after death?’, the best course of action is to speak to a reputable Licensed Insolvency Trustee. Debt relief after death can be a complex subject matter, and it is best to get the appropriate advice depending on your unique circumstances.

So, does debt transfer to family after death? If you still have some questions about debt relief and inheritance, it is important to gain control. Make sure you are on the pathway to a financial future free from debt by reaching out to the experienced debt experts at Spergel. Book a free consultation today to review your debt relief options – you owe it to yourself.


Ashvin Sharma

Ashvin Sharma is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) overseeing all of Spergel's offices in the Greater Vancouver Area and British Columbia. He is also our resident expert on homeownership debt and health debt. In his spare time, Ashvin loves to play sports, spend time with family and friends, and serves as a volunteer coordinator for "Free-Them", a Canadian organization committed to raising awareness about human trafficking.

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