You don’t need to live in the Biltmore House, have a vacation home, or have a private art collection big enough to rival MOMA to consider yourself the owner of an estate. In fact, virtually anyone who owns anything has an “estate” in the eyes of the law. Although the term may conjure images of mansions and flashy cars, for the purposes of estate planning law, the term “estate” covers a whole lot more.
There are two issues many people prefer to avoid thinking about: death and debt. Unfortunately, student loan debt is a part of life for many college graduates nowadays, especially for students obtaining advanced or professional degrees. Within the first quarter of this year, the total national student debt was over $1.5 trillion for the first time, at a staggering $1.521 trillion in national student debt.
61% of 2015 college graduates in North Carolina graduated with student loan debt. A 2018 report indicated that Class of 2017 graduates had accumulated $39,400 in student loan debt. However, students are not alone in their debt load. The same report showed that $81.5 billion of the debt is in Parent PLUS loans.
Since the majority of graduates in North Carolina will likely have some amount of student debt during their lifetime, it's only appropriate to ask what happens to your student loan debt when you die?
Below are the different types of loans and what happens to the debt in the event the borrower passes away. Although it may not be a pleasant topic, it is imperative that you consider your debt as you work on your financial and estate plans.
Types of Student Loans:
● Federal student loans.If the debt is a federally backed education loan that the student took on by him or herself, then the loan is automatically canceled when the student dies, and the government discharges the debt. These loans have no co-signer, and the legal terms that govern the loans specify that the debt is canceled upon the death of the student.
● Private student loans. Whether a private student loan is canceled after the borrower’s death depends on the specific lender’s policies and the loan’s legal documents. Check with the lender to find out if they offer any death discharge protection. Some, but not all, private lenders provide this protection to their borrowers.
● Refinanced student loans.When you refinance your student loan debt, the terms of your old loan are replaced by new terms you agree to when you sign the refinancing documents. While there may be some financial benefits to refinancing your student loans, the terms of your new loan and policies of your new lender will now control your loans. You may lose death discharge protection if you had it in your original loan but it is not present in the new ones.
● Parent PLUSloans.When a parent takes out a PLUS loan to help pay for a child’s education, and either the parent (borrower) or the child (student) later dies, the federal government will forgive the debt. However, if the student dies, the borrower may receive a 1099-C form, which treats the wiped-out debt as taxable income. As is the case with all tax issues, you should discuss your situation with a qualified tax advisor.
● Co-signed student loans. If you have a co-signed student loan and the primary borrower passes away, you are still on the hook for the debt. As the co-signer, if you die, the primary borrower may be required to pay the entire balance of the student loan in full. In this event, it is essential that the primary borrower check the lending agreement and discuss the situation with the lender to see what relief, if any may be available.
Seek Professional Advice
If you have student loan debt, make sure to let your estate planning attorney know to make sure your loans are taken into account when preparing your will or trust. Depending on the type of student loan you have, your estate may or may not be burdened with your debt after you pass away. Factoring in your loans when designing your plan helps ensure that your family is completely protected.
The "For Sale" signs and "Pending/Sold" signs are still taking over Asheville, and clients have been checking in with us after new home purchases, so we thought this blog topic might be of interest. Whether this is your first home or an upgrade/downsize, purchasing a home is a big event in your life. When these major life changes occur, it is important that you are properly prepared. Below are a few things for you to consider now that you finally have the keys to your new home!
A digital asset consent for release is now a standard part of an estate planning package with Clayton and Clayton, PLLC, but what is it?
Recently, North Carolina adopted the revised Uniform Fiduciary Access to Digital Assets Act, or UFADAA. While still new, adopting this statute has important implications with regard to estate planning.
Have you stopped to consider what happens to your digital assets when you die? Do you have photos stored on the cloud? What about digital music, videos, or books? What about access to email accounts, bank accounts, online medical records, web hosting accounts, social networking, and social media accounts?
The Internet is changing on a daily basis, and with those changes, it becomes a more and more ever-present factor in our lives. We took a vacation recently to a remote area with no Internet access, and we quickly realized how much we depend on our digital assets such as photos, videos, email, and file sharing services once we couldn’t access them constantly – and let’s not even get started on the difficult process of explaining to our son why we couldn’t stream his favorite Daniel Tiger videos!
Typically, “custodians” control our digital assets. These custodians are typically the servers, hosts, and/or companies that manage the cloud – which means that access is usually terminated at the death of the user. Prior to the enactment of UFADAA, attorneys often suggested leaving a list of passwords for loved ones to access digital accounts at death or incompetency, but there is a possibility that this is in violation of the user agreements that we agree to when we create such accounts. Best practice now suggests that the best way to do this is to create a Digital Assets Consent for Release in conjunction with a list of all electronic assets and accounts so that your appointed fiduciary knows where to look, what accounts you have, and how to access them.
This is why we are excited that NC has adopted the uniform rules. While our digital assets will still be subject to copyright laws and federal privacy laws, we can now appoint legal access to our accounts through a Digital Assets Consent for Release. What this does is allow the fiduciary, typically the executor of the estate, to legally step into the shoes of the decedent to access these documents. Not only does this make the probate process run smoothly, but it also – and more importantly to loved ones – allows access to these assets.
It’s also important to check with the individual custodians of your accounts to see whether they offer their own estate planning options that you can manage and evaluate now. One example is Facebook’s creation of a Legacy Contact – see more here: https://newsroom.fb.com/news/2015/02/adding-a-legacy-contact/. In circumstances such as those, the UFADAA will defer to the account holder’s choices – although it typically will override “click-through terms-of-service agreements” that conflict with otherwise express instructions made by the account holder.
While a Digital Assets Consent for Release is an important step, it’s best to use it in conjunction with appropriate language in your Last Will and Testament. This way, your appointed fiduciaries should be able to have access to such assets not only during a period of incompetency when you cannot access such records on your own, but also after death.
Curious how your digital assets will be maintained after your death? Don’t hesitate to reach out to us to talk about this some more.
And don’t forget, if you created estate planning documents with Clayton and Clayton recently, but wish to add a Digital Assets Consent for Release to your estate planning documents, we will make one for you free of charge.
When people say that real property (which refers to real estate such as your home, as opposed to personal property such as your chairs, tables, jewelry, etc) passes “outside of probate” what does that mean? Simply put – real estate transfers to the new owner at the time of the decedent’s death. It is not subject to the probate process and it transfers immediately (with some provisions that we touch on below).
NC has essentially made a will for you – under the laws of intestacy – which will apply if you die without a validly executed will. Very rarely do clients enter our office and declare how pleased they are with what the state has decided to do with their assets. More often than not, they want something entirely different than what is provided by the laws of intestacy.