Are Children Responsible For Parents’ Debt After They Pass Away?
As you look to the future and discuss financial planning, you may wonder if children are responsible for their parents’ debt after they pass away. The answer to that question is that it depends. How debts and other financial obligations are satisfied after your death depends upon the types of debts and obligations that you have, as well as how the assets are transferred upon your death, and state laws regarding which debts must be paid first. The estate planning attorneys at Stockton & Stern, LLC work with individuals and families to effectively plan for the future and ensure that their loved ones are cared for according to their wishes.
Types of debt
Most debts and other financial obligations must be paid by the deceased person’s estate. Generally speaking, different types of debt must be paid in the following ways upon your death:
- Mortgages: Any loans that are attached to property must be paid. In most cases, the beneficiary inheriting the property also assumes the debt. With proper estate planning, an executor can be instructed to pay the loan and transfer the property free of debt.
- Credit card debt: Estates are generally required to pay these debts. In situations where the estate does not have enough funds to pay both creditors and beneficiaries, priority may be given to surviving dependent family members. EXPLANATION HERE?
- Business debt: Payment of business debt depends upon the business structure and whether or not the business owner assumed personal liability for the debts.
- Car, boat, or recreational vehicle loans: Loans must be paid. Whoever inherits the vehicle also inherits the debt, unless an estate plan specifies that the vehicle loan is to be paid off.
- Income taxes: Estates must pay any outstanding federal and state income taxes, including any back taxes you owe, as well as taxes on income earned in the tax year of your death.
- Other taxes: Estates must pay all other types of tax that is owed, including estate taxes and property taxes.
- Medical expenses: If you have outstanding medical expenses, your medical provider will likely make a claim for payment from your estate.
Debts are paid first
Upon your death, your executor or whoever is responsible for your affairs will gather your assets, pay your debts, and distribute remaining assets to your heirs or any beneficiaries that are named in your last will and testament. Because debts are paid first, the amount of money or property that is transferred to your beneficiaries may be affected by the amount of your debt.
Comprehensive estate planning
Planning for the future – and for what happens to your estate after you die – is an emotional, difficult process. We understand. At Stockton & Stern, LLC , our Gardner estate planning attorneys guide individuals and families to develop personalized estate plans that address their concerns and satisfy their long-term objectives. To discuss your estate planning needs, contact a member of our team at 913-856-2828 or online to arrange for a confidential consultation.