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At Altman & Associates we are committed to developing estate planning strategies that meet our clients’ needs and keep up with changing times. For instance, recently we have been grappling with estate planning for digital assets (i.e. music and photo libraries, social media and e-mail accounts, etc.), because, unlike 20 years ago, almost everyone now has some form of a digital estate. Similarly, as sizable student loan debt becomes more commonplace, we now also have to factor this into a client’s estate planning equation.
The amount of debt a person has affects estate planning because, in many situations, debts of the decedent will have to be paid prior to assets being transferred to the decedent’s heirs. Thus, as individuals take on more and more student loan debt, it is important for us to understand what will happen to that debt when the individual dies.
In general, the federal government will discharge a person’s federal student loans upon their death, but private lenders can make a claim against the estate for the amount of a private student loan. What does that mean to estate planning? You have to start by knowing if your loans are federal or private:
- Direct Loans: The federal government actually loaned the money.
- Federal Family Education Loan Program: A private institution loaned the money but the federal government insured it.
- Private Student Loan: An individual borrowed from a private lender without government involvement.
Once you determine which of your loans are federal and which ones are private, then you will know how much student loan debt your estate will have to pay prior to transferring your assets to your heirs.
Although the question of student debt appears to have a simple answer, it does show the complexity of estate planning. That is, a person dies with several different types of assets and debts and many of those will be governed by separate contracts and policies. For instance, transferring your iTunes library is governed by the iTunes terms and conditions. In the same respect, federal student loans are governed by the federal government rules and private student loans are governed by the rules of that individual lender. By understanding the issues that our clients will face, our goal is to make complex and intricate rules manageable and straightforward.
- Gary Altman, Esq. and Michael Wolsh, Esq.