If there is one group of people that pays almost no attention to estate planning, it’s college students and other young adults. When you are young, you have almost no concept of what issues you will have to worry about when you reach old age. Even if you understand them on an intellectual level, worrying about them something that doesn’t even enter your mind.
Unfortunately, college students and other young adults often carry a lot of debt. That debt, apart from the financial impacts it can have on your life, can be a serious problem for your family in some situations. When young people leave behind estates that carry debt, it sometimes falls to their parents and other family members to pay for those obligations.
If you are a young person with student loans, credit card debt, or other obligations, there are some issues you need to understand.
Death and Debt
Young people rarely worry about estate planning because they rarely think about death. Even if they think about it, the chances that a young adult will die are low. Nevertheless, there are issues you might need to consider.
In most situations, debts left behind by someone do not have to be paid by that person’s relatives. For example, let’s say that you have $10,000 in credit card debt. After you die, your creditors will not be able to go after your parents if they want to collect the unpaid debt. Instead, those creditors will have to file a claim with your estate. Your estate is a collection of property and interests you leave behind after your death. If your creditors want to be repaid, they will have to try to get repayment from the property you leave behind.
Student Loans, Co-Signors, and Life Insurance
For young adults who have student loans, the question of who has to repay those loans upon your death becomes more complicated. In general, taking out a federal student loan does not require you to have a cosigner, and those debts get discharged upon your death. On the other hand, if you took out a private student loan you may have asked your parents or another close adult friend or relative to sign as a cosigner. In this situation, the cosigner could be responsible for paying for those loans upon your death.
For young adults who have student loans, or any other debt, that required a cosigner, you might consider obtaining life insurance. Young people can usually acquire life insurance at a minimal cost. Should you die before paying off your student loans, your life insurance policy benefit can be used to pay the debt, allowing your parents or other cosigners to avoid having to pay themselves.