Debts and Your Estate: What Every Canadian Should Know

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Debts and Your Estate: What Every Canadian Should Know

When you die, your debts don’t follow you beyond the grave. But that doesn’t mean that you can ignore them – at least not in Canada, anyway. Not all liabilities are the same, so you need to understand how Canadian law treats different types of debt. This vital understanding can help you make wise choices while planning for your family’s future.

Secured and Unsecured Debt

Most debt falls into one of two categories – secured or unsecured. Secured debt involves assets used as collateral, as Investopedia explains. Should the borrower default, the lender can seize the asset to help pay for the loan. Mortgages and auto loans are the two most common kinds of secured debt.

Most consumer debt, like credit cards or personal loans, is unsecured. This type doesn’t rely on collateral, so it tends to carry higher interest rates. Certain monthly expenses are also unsecured debts. Some examples include medical bills, revolving store credit, and gym memberships.

Unpaid Debts and Your Estate

Your estate contains both your assets and liabilities. Think of it this way: Anything you own is an asset, and anything you owe is a liability. Most creditors will still want repayment after you die, and they’ll hit up your estate to collect.

Secured or unsecured, your estate must pay debts before your heirs receive anything. Statistics from StatCan, HuffPost Canada, and CBC News may put things into perspective:

  • Nearly 68% of Canadians own their homes.
  • The average home price is currently $586,000.
  • The average Canadian owes $73,552 in debt.

The order in which debts are paid can vary. Home mortgages usually get priority, followed by auto loans and other secured debt. Unsecured debt is next on the list. Depending on how much you owe, your debts could total more than the value of your estate, in which case, under Canadian law, your estate is either declared insolvent or placed into bankruptcy. Mondaq explains that these estates must pay funeral expenses first. Estate administrative costs are next, followed by government debts and other remaining liabilities.

Debts and Your Family

Creditors can make claims against your estate, but what happens when there’s nothing left to pay? Can they come after your family for payment? Not in most cases, as Credit Canada explains. If you’re the sole borrower with no cosigners, your creditors are out of luck if your estate can’t pay them. Unscrupulous creditors may still try to collect anyway – they know the law but still want their money. Your family can file complaints with their provincial or territorial consumer affairs office. The national Office of Consumer Affairs offers tips for filing complaints.

People who cosign or jointly apply for debt are still on the hook for repayment if the primary borrower dies. Some creditors also hold supplementary cardholders responsible for payment. If you’re worried about lingering debt, you can give your heirs “living inheritances” while you’re still alive. Global News clarifies that Canada does not tax either inheritances or gifts. Capital gains taxes may apply if you’re gifting an asset and its value grows.

A Quick Word About Student Loans

Student loans are technically unsecured debt, but they’re treated a little differently. Employment and Social Development Canada explains that federal student loans are forgiven upon a borrower’s death. With private student loans, it’s a different story. Loans Canada reveals that private lenders have no legal obligation to forgive their loans after a borrower dies. While some do discharge these loans, others may make claims against your estate.

Nothing in our world is certain except death and taxes, quipped American statesman Benjamin Franklin. Understanding your debt and having a solid estate plan can prevent your family from being saddled with burdens after you’re gone.

Debts and Your Estate: What Every Canadian Should Know

When you die, your debts don’t follow you beyond the grave. But that doesn’t mean that you can ignore them – at least not in Canada, anyway. Not all liabilities are the same, so you need to understand how Canadian law treats different types of debt. This vital understanding can help you make wise choices while planning for your family’s future.

Secured and Unsecured Debt

Most debt falls into one of two categories – secured or unsecured. Secured debt involves assets used as collateral, as Investopedia explains. Should the borrower default, the lender can seize the asset to help pay for the loan. Mortgages and auto loans are the two most common kinds of secured debt.

Most consumer debt, like credit cards or personal loans, is unsecured. This type doesn’t rely on collateral, so it tends to carry higher interest rates. Certain monthly expenses are also unsecured debts. Some examples include medical bills, revolving store credit, and gym memberships.

Unpaid Debts and Your Estate

Your estate contains both your assets and liabilities. Think of it this way: Anything you own is an asset, and anything you owe is a liability. Most creditors will still want repayment after you die, and they’ll hit up your estate to collect.

Secured or unsecured, your estate must pay debts before your heirs receive anything. Statistics from StatCan, HuffPost Canada, and CBC News may put things into perspective:

  • Nearly 68% of Canadians own their homes.
  • The average home price is currently $586,000.
  • The average Canadian owes $73,552 in debt.

The order in which debts are paid can vary. Home mortgages usually get priority, followed by auto loans and other secured debt. Unsecured debt is next on the list. Depending on how much you owe, your debts could total more than the value of your estate, in which case, under Canadian law, your estate is either declared insolvent or placed into bankruptcy. Mondaq explains that these estates must pay funeral expenses first. Estate administrative costs are next, followed by government debts and other remaining liabilities.

Debts and Your Family

Creditors can make claims against your estate, but what happens when there’s nothing left to pay? Can they come after your family for payment? Not in most cases, as Credit Canada explains. If you’re the sole borrower with no cosigners, your creditors are out of luck if your estate can’t pay them. Unscrupulous creditors may still try to collect anyway – they know the law but still want their money. Your family can file complaints with their provincial or territorial consumer affairs office. The national Office of Consumer Affairs offers tips for filing complaints.

People who cosign or jointly apply for debt are still on the hook for repayment if the primary borrower dies. Some creditors also hold supplementary cardholders responsible for payment. If you’re worried about lingering debt, you can give your heirs “living inheritances” while you’re still alive. Global News clarifies that Canada does not tax either inheritances or gifts. Capital gains taxes may apply if you’re gifting an asset and its value grows.

A Quick Word About Student Loans

Student loans are technically unsecured debt, but they’re treated a little differently. Employment and Social Development Canada explains that federal student loans are forgiven upon a borrower’s death. With private student loans, it’s a different story. Loans Canada reveals that private lenders have no legal obligation to forgive their loans after a borrower dies. While some do discharge these loans, others may make claims against your estate.

Nothing in our world is certain except death and taxes, quipped American statesman Benjamin Franklin. Understanding your debt and having a solid estate plan can prevent your family from being saddled with burdens after you’re gone.

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