Here's What Happens to Your Credit Cards When You Pass Away

Most Americans have credit cards. A sizable 80% of consumers carry at least one, according to a study by The Motley Fool Ascent. But what exactly happens to those credit cards when the cardholder dies?

There's a lot of misinformation on this subject. By knowing what happens to your credit cards when you pass away, you can plan ahead and make it easier for your loved ones.

Your credit cards aren't canceled until the card issuer is notified

If a credit card company learns a cardholder is deceased, it will close that person's credit cards. However, it won't know you've passed away until someone provides notification. That's why you should:

• Make a list of all your credit cards and the card issuer.
• Give that list to a family member, friend, or the executor of your estate with instructions to cancel all those cards.
• Make sure they know not to use the credit cards. Even if they had your permission or were an authorized user on your credit card account, it's fraud to use a deceased person's credit card, including as an authorized user.
• In your instructions, don't forget to mention requesting any rewards you've earned from the card issuer. If you used rewards credit cards, you can at least ensure someone gets to redeem your remaining cash back or points. If nothing else, they could be used to reduce your remaining card balance.

It's important that your credit cards are closed as soon as possible when you pass away. Until then, they can still be used for transactions. Sadly, people who are recently deceased can be targets for credit card fraud. Identity thieves will take advantage of the possibility that no one is watching the account anymore.

The card issuer will also continue to expect your monthly payment. When it doesn't receive a payment, there could be late fees and interest charges.

Now, these are all fixable issues. Your card issuer would almost certainly assist with resolving any fraudulent charges, as well as fees charged after your death. But it will save time and a potential headache for your loved ones if they get your cards canceled and don't need to deal with any problems.

Your estate is responsible for your credit card balances

Before your beneficiaries can inherit your estate, it must first pay for outstanding debts. This includes your credit card balances.

Let's say you leave behind $500,000 in banking, investment, and retirement accounts. You also have $10,000 in credit card balances when you pass away. The executor of your estate would first need to pay those credit card balances. Your beneficiaries would then inherit the remaining $490,000.

What if your estate doesn't have enough money to pay off your credit card debt? In that case, your estate will pay what it can, and there won't be anything left for your beneficiaries.

The good news is that in most cases, no one else is liable for your credit card debt when you pass away. There are, however, a few exceptions where another person could be responsible for your debt:

• If you had a joint credit card, the joint cardholder will be responsible.
• If you had a cosigner when applying for the credit card, they will be responsible.
• If you were married in a community property state, your surviving spouse will be responsible.

Any time someone passes away, it's hard on those they leave behind. Along with the heavy emotional toll, there's also a lot to manage, including on the financial side of things. You can help with that by leaving detailed instructions for closing your credit cards. And, if you keep your balances to a minimum, you can ensure your estate doesn't all go toward paying off credit card debt.