You are making your estate plan, and you still have certain debts. Maybe you are planning to take care of some of them. You may want to set aside a fund to pay off your mortgage in the event of an unexpected passing, for example, or to take care of your credit card bills.
But if you do not plan in advance, is there a risk that your children could inherit your debts? When you pass away, your assets will then pass to the next generation. Does this mean they also take on your financial liabilities?
The estate is responsible
In most cases, you do not need to worry about children inheriting your debt. Instead, your estate is simply responsible for satisfying those obligations.
For example, if you pass away and you still owe thousands of dollars to a credit card company, they can file a claim against your estate, and the estate executor then pays the creditor before distributing your remaining assets to your beneficiaries. The executor could also take care of paying final utilities, property taxes, income taxes and things of this nature.
The only way your children would be responsible is if they already share some of that debt with you. For instance, maybe you and your adult child are technically cosigned on a mortgage, even though you have been making the full payment every month. Since the child is a cosigner, then they do inherit the balance of the loan.
But for debt that you took out entirely on your own, it is your estate and not your children who are responsible for paying it back.
Crafting an estate plan
It is important to think about debt and assets when creating your estate plan this year. Be sure you know what options you have and how to create a plan that will work for your family.
