The death of a spouse for many survivors is a financially paralyzing event. Even with extraordinary planning, it is emotionally difficult and a tedious financial endeavor. Protecting one’s credit is the furthest thing on the mind.
With a proactive approach, we can forego potentially dangerous financial consequences. By taking a closer look at some of our most basic decisions, such as maintaining joint credit, and calculating the possible long term cost in advance, we can prevent months or years of unnecessary added grief.
Below are a few specific thoughts on joint vs. separate credit accounts to help you become proactive long before faced with this dilemma.
One important issue commonly overlooked by couples until too late, is what becomes of outstanding debt left by the deceased. This is particularly hazardous for married couples with jointly held credit cards who keep month-to-month balances. I’m not simply referring to the elderly, as a spouse can die at any time. When planning for the inevitable, here are some key points to consider:
Maintain joint credit in moderation…or not at all.
Joint credit will leave the surviving spouse with a total obligation for all remaining debt such as auto loans, credit card balances, mortgages or any other type of debt. If spouses have separate credit, their rating will not be affected by the spouse’s bad credit behavior (late payments, charge-offs, bankruptcies, etc.).
Beware of “additional card” offers.
Carrying credit cards on the same account is not recommended as outstanding balances are often treated as any other joint account. It’s quite common for the card issuer to pursue the additional card holder for any and all outstanding balances.
Lenders will find you.
Credit card companies have become amazingly efficient in determining when a borrower is deceased in order to make a claim against his or her assets. Although most states have specific laws placing a timetable on a lender’s ability to make claims against an estate, executors may have certain responsibilities under those laws to inform the creditors.
Keep in mind that having separate credit will not protect the estate’s assets. Savvy creditors can and will pursue the assets of your shared estate to settle up. Of course, the best practice and perfect remedy is simply to keep debt under control at all times.
Another important issue to consider – well in advance – is how to properly handle the death of a spouse, and knowing what the process should look like.
Identity thieves are more sophisticated than ever about checking death notices and tracing the information to their respective credit accounts. While The Social Security Administration, local Department of Motor Vehicles and credit bureaus register a death as soon as they are informed, it may take months for authorities to include a new death in their databases. Until then, criminals have free reign to open credit cards, get state identification cards, and apply for jobs using a deceased person’s identity. Therefore, it is extremely important to further secure one’s identity by contact all lenders immediately.
Here are a few simple steps to help you through the process:
- Send a copy of the deceased death certificate to all three credit bureaus and request that their credit file be suppressed. This locks down the deceased persons file so no further credit can be obtained in their name.
- Notify all creditors of the person’s death by sending them a copy of the death certificate.
- Cancel their driver’s license and any other group membership or affiliation with an identification card.
- Be cautious about how much information is shared in public announcements (e.g., obituaries, etc.).
- Think twice before closing any joint accounts. While removing the deceased’s name should have no impact on your credit score, it will reduce or eliminate the amount of available credit for the survivor.
- Credit is a wonderful tool! But please remember that only by first considering all of its potential costs are you fully prepared to finish well!
Guy Hatcher, CFP® – known as The Legacy Guy – has spent his lifetime helping families plan their legacy. His new book, Your Future Reflection: How to Leave a Legacy Beyond Money, is now available at amazon.com. Follow him on twitter @guyhatcher or go to www.guyhatcher.com.