This contributed post is for informational purposes only. Please consult a business, financial and legal professional before making any decisions. We may earn money or products from the affiliate links in this post.
While most people don’t look forward to the funeral of elderly relatives, many secretly hope that they might receive a generous sum with the inheritance. After all, around 50% of the richest American billionaires of our days have inherited all or part of their fortune.
So, it is only natural to imagine that you might have a wealthy and distant great-uncle who you don’t know about yet and who leave you all his money after his death. However, more often than not, the death of a relative might have a negative effect on your bank account. Indeed, there are 4 key situations in which the death of a relative can actually ruin you.
When you took a shared loan
Taking a personal loan is a big issue, and while you can’t borrow money on behalf of a relative, you might find yourself in a situation where you both sign a common loan agreement. This can be the case for a loan mortgage, for example. It’s standard practice for mortgage brokers to lend to couples, friends or relatives who want to purchase a property together.
Depending on the loan terms, in the event of the death of one of the borrowers, you might have to repay the totality of the money. Some lenders stipulate repayment options in the event of a death, so it’s worth to ask about their attitude to it before you agree to anything.
When due taxes need to be paid
If your relative was looking at investment options, it’s likely that they might have looked at the advantages of mutual fund vs. annuity options. Mutual funds are typically funds that can be invested in stocks, bonds, money market instruments or a combination of the three.
Variable annuities offer similar opportunities, but they are tax-deferred, meaning that there are taxes to pay on the income or the investment gains until the money is withdrawn. However, if your relative didn’t withdraw the income, the payment of the taxes will be your responsibility.
When you have a joint bank account
You might not consider sharing a bank account with a relative, you more and more couples choose to open a joint account to manage their common bills and expenses. Additionally, it’s not uncommon for adults who are caring for their aging parents to share a joint bank account and help them to manage their finances.
However, in the case of a shared account, you share every single aspect of the finances, including debts that your relative might accumulate. In the event of the death of your relative, unpaid credit card bills and other expenses that are linked to your dual account will go to you.
When their assets can’t cover their debts
Last, but not least, if you are a direct heir and you are due to inherit the assets of your relative, you may not be able to make any profit from it. Indeed, if your relative was struggling with debts, you might need to sell their assets to pay back what is due. Additionally, while some lenders can come to an arrangement, it doesn’t mean that all debts can be canceled.
Losing a dear relative is a traumatic experience. However, when finances become part of the situation, it can also become a dramatic event that affects your lifestyle permanently.