An Old Adage

“You can’t take it with you.”

It’s worth noting that relatives are generally not responsible for the deceased person’s debts unless they’ve co-signed for a loan or credit card, share ownership of a property or business, or reside in one of the nine community property states. In most cases, debts fall to the deceased person’s estate. This can complicate things, especially for family members expecting an inheritance—there’s no inheritance unless the estate has sufficient assets to settle outstanding debts (Debt.org).

This reality was one of our first considerations when we began retirement planning. Kate and I were determined to leave a legacy free of debt, so we made paying off our obligations a priority. Today, all of our assets are paid for, and any remaining debts we incur are covered by an IRA earmarked specifically for that purpose.

Our daughter, who serves as our executor, has access to all accounts, knows what’s owed, and will inherit the IRA funds to settle any debts. Naturally, it’s our responsibility to ensure those debts are as minimal as possible.

Payoffs and Debt Reduction

Kate and I were fortunate enough to own a home with substantial equity and to leave our jobs with generous severance packages and savings. As a result, we paid off our car, credit debt, and any other outstanding balances. Then we began planning for the rest of our retirement.

There is a caveat, however. Since retiring in 2017, we have twice traded our car for a new, more expensive vehicle. In each instance, we pulled from the IRA to pay it off, against the advice of our broker.

The Broker’s Advice

Around the time Kate entered DROP (Deferred Retirement Option Program) with the Florida State Government, we sought advice from an old acquaintance who was now a stockbroker. We had no idea what all this meant, so we turned to him for professional guidance.

He began by asking the usual questions about income, savings, investments, homeownership, and more. From there, he built a “custom investment plan” designed to see us through the rest of our lives. But the plan he devised seemed utterly unattainable. According to him, we needed $1.5 million in liquid assets to maintain our “current lifestyle.”

Our retirement savings at the time were a fraction of that amount. We told him plainly, “That’s not realistic!”

His response: “I understand, but you’ll need to make up as much as possible to sustain your lifestyle.”

I couldn’t help but laugh. “We don’t have a lifestyle to maintain! It’s just the two of us. We don’t want a boat, a motorhome, or a big house. We just want to live comfortably.”

What this young broker may or may not have understood was that our investments over nearly sixty years were put into raising four children, scraping by with modest incomes amid high costs of living, and trying to formulate a sustainable future for our family. We have never learned what a “lifestyle” is! In other words, “we are ordinary people.”

In Conclusion

No two people’s circumstances are exactly alike. Some have, some do not. Some planned, others did not, and some had much more time to plan and prepare than the majority of us.

Regardless of your circumstances, nobody should want to leave a burden for those who follow. When it comes down to the two of you, or just you if you are alone, we encourage minimalizing. All that memorabilia and the sentimental items we carry with us, nobody else will ever want—liquidate it. Have a sale, open the doors, and give it away if necessary. Unburden yourself and those you will leave behind.

Relatives are not responsible for the deceased member’s debt unless they co-signed for a loan, credit card, have joint ownership of a property or business, or live in one of the nine community property states. The rest of the debt obligations fall to the deceased person’s estate (if there is one). This can get tricky, especially for relatives expecting an inheritance. There can only be an inheritance if there are enough assets in the estate to pay off the deceased person’s debts (Debt.org).

This subject was one of our first considerations when we began discussing retirement. We wanted to leave a legacy behind, but one unencumbered by debt. Consequently, all of our assets are paid for, and any credit debt we accumulate is covered by an IRA, left specifically for that purpose.

In other words, our executor, i.e., our daughter, has access to all accounts, knows what is owed where, and will inherit the IRA money to resolve any debts we leave behind. Of course, it’s our responsibility to ensure the debts are minimal.

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