Nationwide Wealth Transfer Is Beginning Soon

Much has been discussed about the major wealth transfer that’s going to happen over the next few years, as the Baby Boomer generation continues to age.

In fact, much of that “great wealth transfer” has already begun.

But, one thing that isn’t discussed as much is what else could be passed on with a lot of wealth — a lot of debt.

A recent report in Yahoo Finance highlighted the fact that nearly half of all Americans are expected to transfer at least some debt onto their loved ones when they die. That data came from a survey that PolicyGenius conducted recently.

According to the survey, the average household in America has $10,000 in debt on credit cards, $58,957 in debt for student loans, $241,840 in debt for mortgages and $22,612 in debt for cars.
This could pose a major issue for heirs of Baby Boomers when they die.

Rosalyn Glenn, who works for Prudential as a financial planner, recently commented to Yahoo Finance:

“Debt does not miraculously disappear when someone passes away, and any outstanding debt is paid out of assets like property, retirement accounts and bank accounts. If you have assets, your debt can be transferred at death, and if you don’t have a plan for managing the debt, you leave your family at risk.”

Glenn suggested that everyone should at least look into life insurance policies and whether they would be best for their family. These policies could help to take care of your family after you pass, or at least soften the financial blow that it is likely to cause.

As she said:

“Unfortunately, there have been cases where families were displaced because of the loss of income and the inability of the surviving spouse to maintain the mortgage on a single income.”

Some types of debt are forgiven when someone passes away, but not all debt is. For instance, federal student loans get completely forgiven when the borrower passes away. However, some student loans from private lenders can indeed pass onto heirs upon the death of the borrower.

PolicyGenius’ report further highlighted 21% of Americans who are expecting to pass on debt to their heirs don’t have any life insurance.

This is the problem that Collective Wealth Partners’ Shardea Ages says could be solved at least in part by life insurance.

She told Yahoo Finance:

“One of the advantages of life insurance is it provides security in case a loved one dies and leaves you responsible to pay any jointly owned debt, such as a mortgage. And the best part is that life insurance proceeds are tax-free, in most cases.”

There’s a pretty big disparity in terms of debt based on wealth in America, too. The study by PolicyGenius, for instance, found that households that have income that exceeds $150,000 have more debt than others.

At the same time, the households with lower income levels are much less prepared to help their loved ones pay some debts off.

The study found that just 13% of households in the higher income bracket don’t have life insurance, compared to about 31% for households with lower income levels.