April 23, 2013

Are You Responsible for Your Loved One's Debts?

It was a wild, wild week.

Last Monday, bombs exploded near the finish of the Boston Marathon. Not long after, media outlets let the public know letters to President Obama and a senator from Mississippi contained the poison ricin. On Wednesday, the town of West, Texas was flattened by an explosion at a fertilizer plant. By the end of the week, a man had been arrested for sending the ricin letters, the city of Boston had been locked down, the bombing suspects had been captured, and folks were returning to their homes in West, Texas.

The week's economic news wasn't all that encouraging. The pace of economic growth in China slowed unexpectedly, the International Monetary Fund reduced its 2013 growth forecast for the United States for the fourth time, earnings results were mixed, and an index of leading economic indicators in the Unites States unexpectedly moved lower. On the plus side, new home construction hit a five-year high. All three major indices - the Dow Jones Industrials Index, The Standard & Poor's 500, and the NASDAQ - finished the week down more than 2 percent.

The most significant move of the week took place in the gold market which lost about 9 percent on Monday. That was the biggest one day fall in 30 years. The market recovered some value later in the week, finishing down about 8.5 percent. According to The Economist, "The usual explanation for sharp price movements, when an economic rationale seems lacking, is that someone is selling off their holdings at any price. Some have pointed at Cyprus which may have to sell gold in response to its debt crisis. Although Cyprus' gold holdings are small, the fear is that other troubled eurozone nations may follow suit."

Will this week be calmer? It's possible, but economic news will include the first estimate of U.S. GDP growth for first quarter. According to Reuters, GDP growth is forecast at 3 percent annualized even though fourth quarter's GDP growth was 0.4 percent annualized.

ARE YOU RESPONSIBLE FOR YOUR LOVED ONE'S UNPAID DEBT? It's never easy when someone dies. Grief is a powerful, and sometimes debilitating, experience that often leaves next of kin vulnerable. Unfortunately, there is a group that sometimes tries to take advantage of family members in mourning. No, they're not scammers or confidence men. They're debt collectors who try to persuade family members to accept responsibility for hospital bills, credit card balances, auto loans, and other debts incurred by the deceased even though family members have no legal obligation to pay.

People don't always know when someone dies, their debts die with them. There are exceptions to this, particularly for spouses. If you live in a community property state, typically, spouses share property and debts equally. Non-spouse family members, however, have no obligation to pay outstanding debts of the deceased unless they have co-signed a debt agreement.

Regardless of these facts, debt collectors may contact you after the death of a loved one. The AARP Bulletin reported "debt collection agencies frequently employ specially trained representatives who make sympathetic calls to husbands, wives, children, and other family members to urge them ever-so-gently to pay what the loved one owed." The Bulletin advised family members who receive these calls to hang up. There is an established procedure for collecting debts from a deceased person. It's called probate, and it is the appropriate way for debt collectors to pursue collections after death.

After receiving numerous complaints about death-collections practices, the Federal Trade Commission (FTC) investigated the situation by listening to recordings of calls between collectors and mourners. The FTC determined that some debt collectors misled relatives into believing they had to pay the deceased's debts. As government agencies are apt to do, the FTC issued new guidelines. Debt collectors should discuss a dead person's debt only with the spouse or someone chosen by the estate to discuss the matter.

The next time you revise your will, you may want to designate someone to discuss any outstanding debts after your death. It could save your spouse some unnecessary heartache.

Weekly Focus - Think About It

"Everything has beauty, but not everyone sees it."

—Confucius

Best regards,
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management

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