DISCLAIMER: Thanks for visiting our blog! Eirene strives to provide equal, unbiased information for all it’s readers and customers. That being said, we are not a financial institution and urge you to seek out expert advice before making any decisions.
When someone dies, it’s already an emotional time. Pile on money troubles and debts, and suddenly it can feel a lot more complicated and burdensome.
In Canada, while debts cannot be inherited nor transferred upon death, there are a few important things to be aware of, which we’ve summarized in this blog post.
Here at Eirene, we want to support unpacking difficult conversations around end-of-life planning and help families navigate the complexities of this stage of life. We hope to provide helpful information to make things feel even a little less complicated; as such, today’s blog focuses on all things debt and dying.
Can I Inherit Debt In Canada?
“The simple answer is no—the debts of your parents, partner, or children do not become yours if they pass away, nor will your debts be transferred to someone else should you die. However, creditors can try to make a claim on your loved one’s estate if they can prove they are owed money.”
As with everything, there are, of course, exceptions to the rule. For example, debts or money owed through joint and co-signed accounts become your responsibility should the other co-signer pass away. If you have joint debts or you have co-signed on a loan for someone else, if they were to pass away, creditors will contact you for payment and will hold you responsible for paying back the debt in full. Think about it this way: if you were legally responsible for the debt while the borrower was alive, then you will remain responsible for it, especially if they were to pass away.
Credit Card Debt
The estate assets, such as “home or their savings, must first go toward paying off the credit cards before you, as a beneficiary, are paid out. This means the deceased’s estate is obligated to pay off credit card debts, not you or other family members (unless, as mentioned, you had a joint credit card).”
And what if there are no assets?
“Although you’re not obligated to pay these credit cards with your own money, and creditors know they are uncollectible debts, they may try to convince you otherwise and even threaten to take you to court to recoup their losses, especially if it's a lot of money.”
Ways to Avoid Inheriting Debt
Credit Canada outlines eight important pieces of advice:
- Don’t co-sign or take on joint debt (this is one of the ways you can inherit debt in Canada)
- Beware of supplementary credit cards: “some companies can hold the supplementary cardholder equally responsible for repaying the entire balance”
- Consider a term life insurance policy: “the debts do not ‘live on’ for the co-signer or co-borrower”
- Talk to your parents about debt: talking about death is uncomfortable, and it’s important to know what you’re up against
- Beware of collection agencies
- Create a will to avoid intestacy (condition of an estate of a person who dies without a will and owns property with a total value greater than that of their outstanding debts. In addition, a will that covers only part of an estate sometimes is intestate. In either of these instances, a probate court often distributes the assets of the deceased)
- Distribute your inheritance before death (“thankfully, there isn’t a Canadian inheritance tax, but there are other considerations and implications which are covered in more detail in this Globe and Mail story.”)
- Arrange a repayment plan to get yourself out of debt
Important Action Steps When There Is Debt Left Behind
Credit Canada outlines three important considerations:
- Send the death certificate to creditors
- Set aside beneficiary money to pay outstanding bills
- Get professional legal advice
Canada Revenue Agency: What To Do Following A Death
“This information sheet contains basic information that the family and legal representative should know to start settling the affairs of the deceased person.”
Informing the Federal Government of a Death
“It is important to report the death of a beneficiary to the federal government as quickly as possible to avoid benefit overpayments. You may have to inform several federal programs and departments, depending on the deceased person’s situation and place of residence.”
This page outlines what you need to know.
This CBC article titled ‘The consumer debt that goes 'poof' when you die’ provides some helpful information.
Summary: For Canadians with mounting consumer debt, it may be useful to know that when you die, your surviving family members won't be required to pay unpaid bills such as credit card debt.
This may not be a wise long-term financial strategy, but B.C. notary Ron Usher noted that if there are not enough assets in your estate to pay off your debts, your family won't have to.
“Basically, you cannot get blood from a stone,' Usher said. "This is not Victorian England, fortunately.”
It's hard to say how many people leave behind consumer debt when they die.
Numbers collected by the Canadian Bankers Association since 2004 show that Canadian banks write off between three and six percent of credit card debt each year. Around one percent of accounts are delinquent for 90 days or more.
While talking openly about death and money is still uncommon in many ways, there is a growing trend among Canadians to bridge the dialogue, arrange their affairs and ensure a plan for their debts is also included in their end-of-life planning.
Most “want to be able to leave something for their loved ones after they die, so carrying unpaid debts into the grave is not something most people are willing to consider.”
Despite this, we can probably still get much, much better about talking about these kinds of onerous topics. At Eirene, we make it our mission to unpack difficult conversations around end-of-life planning and help families navigate the complexities of death care—We’re here to support you. We want to ensure a better death becomes integral to a good life, and that includes talking about these oftentimes hard-to-have conversations.
To learn more and access additional resources, visit www.eirene.ca.