Many people operate with a substantial amount of debt. People often have credit card debt that they pay off on an ongoing basis. Even though they may pay it off at the end of the month, they are constantly making new charges on that account.
As you make your estate plan and determine how your assets are going to be split up among your children, you may find yourself worried about this debt. If you passed away unexpectedly tomorrow, there could still be a significant balance on your credit card. Would this become a financial burden for your children?
Debts and taxes
Fortunately, the answer is generally no. Children are not going to inherit debts, including credit card debt, tax debt, mortgage debt, student loan debt or other personal obligations.
The exception, of course, is if it is already a joint debt. If you and an adult child are co-owners on a financial account, they may still need to make the payments, even if you pass away.
When it comes to personal debt, those obligations are typically paid out of your estate. After you pass away, your estate executor gains access to your accounts. Creditors can make claims, and the executor can use estate funds to pay off outstanding debts. They may also need to address final tax obligations, such as income or property taxes.
Because the estate handles these payments, your children generally do not have to worry about inheriting those debts.
The complexities of estate planning
This helps demonstrate some of the complexities involved in drafting an estate plan and considering both your assets and obligations. It can help to work with an experienced attorney to ensure everything is handled properly.
