What will happen to your credit card debt and rewards after you pass away?
Published: April 08, 2020
Death is one of the unfortunate certainties of life, and no-one wants to face the realities of a family member dying. When a person passes, there are often financial considerations to make. If there is debt left behind, such as credit card bills, you may ask who is responsible for repaying outstanding balances?
When a single signatory holds the debt, the burden of the payments falls onto the creditor in most situations. In other words, the credit card debt will become the responsibility of the borrower. In principle that’s fine, but real life is often more complicated.
Understanding credit card debt is important and knowing how balances can effectively be paid off can help you avoid financial trouble. By using a credit card debt calculator, you can take control of credit card debt and understand the best path forward. Whether you’re an estate executor or thinking about the future, having knowledge of credit cards in Canada is important.
It is important to know that a family member of a deceased person has no obligation to pay off credit card debts, especially out of their own money. However, some exceptions are worth considering, such as cosigned accounts and state executor roles.
When a person passes away, the accumulation of all their wealth and assets are put into an estate. An estate gathers all money held in banks, possessions, and yes, even debt. An executor of the estate is the person placed in charge of handling all affairs of the deceased. This includes managing debt through the application of a probate.
Even if you never personally held the debt, as the executor of the estate, the burden of payment will fall on you. It is worth noting this does not mean you will pay off the balance from your own finances. Instead, all debts are paid from the estate before other assets are distributed to beneficiaries. Under most circumstances, it is the responsibility of the executor to notify lenders when a relative dies. Legally, credit card companies cannot add any fees or penalties when an estate is being settled and they must notify the executor about balances due.
In situations where there is not enough money held by the estate to pay the credit card debt, the creditor is unable to recoup outstanding balances. Because credit cards are typically unsecured, the lender may have to write off the debt. This is bad news for the creditor but eases the burden on state executors.
Scenarios where you might have to pay the credit card debt While you may find you’re not responsible for paying off the credit card debt, there are exceptions where you must pay the outstanding credit balance when a loved one dies.
- You cosigned the credit card along with the deceased.
- You are the estate executor and did not meet the requirements of probate laws.
- The credit card was a joint account with the deceased person. In this scenario, you will be responsible for covering the debt.
In most circumstances, people included as an authorized user of a credit card are not responsible for ongoing payments. Only exceptions, in this case, would be if you fall under one of the rules above. Authorized cardholders are permitted to use a credit card, but they never formally agree to be responsible for its payments.
In terms of organizing an estate and handling debts, credit cards are usually far down the list. Secured debts like mortgages are more important and given precedence. There is also a timeframe in which credit card companies must file a claim against an estate. As a beneficiary, you will be below credit card companies on the pecking order. However, you would only have to make up the remainder of the debt if the money in the estate runs out and you meet one of the rules above.
Many credit card lenders now offer rewards with their cards. If a rewards credit card holder dies, estate executors are typically left confused about whether they can redeem points or not. Of course, in the grand scheme of duties to handle after the death of a loved one, credit card points are hardly the weightiest.
However, rewards are a task heirs and executors are increasingly dealing with. When it comes to redeeming benefits such as points from rewards credit cards, each issuer may have different terms and conditions.
Most issuers claim rewards don’t have a cash value and so are not classed as property of the account holder. That’s not good news, right? Well, many credit card providers will provide some way to make use of rewards, such as transferring them to another account.
Other issuers will automatically redeem the points value for the cash equivalent and then subtract the amount from an account balance. So, there are ways to work with the company to ensure the rewards don’t go to waste.