The average American has over $175,000 in debt. If you’re a parent, the question of what happens to your debts once you pass away has probably crossed your mind more than once.
Although generally your children will not be personally responsible for your debts, your estate or assets may be subject to those debts, and your children could have personal responsibility under certain circumstances.
If you pass away with business or personal debts, and the money and other assets you owned at the time of your death are sufficient to pay those debts, your children will not have a personal responsibility to pay anything towards those debts.
However, this may cause the inheritance you planned to leave for them to be reduced or eliminated. Whoever is in charge of settling your estate will need to use your cash and sell your assets to pay your debts before anything is available for your family. If your debts are secured by any of your assets, such as a mortgage on your home or a car loan, those assets will pass to your family subject to the debt, and must be paid off for your family to be able to sell those assets or own those assets free and clear.
If your assets are not sufficient to cover your debts when you die, and your children cannot be tied to your loans in any way, those debts will likely disappear. However, if your child co-signed for you on any credit cards, auto loans, or mortgage loans, they could be personally liable to pay the debts that remain if your estate does not have sufficient assets to pay them.
As a parent, it’s important to understand what a child co-signing for you on any sort of loan means. When your child co-signs, they are legally committing to pay off the loan on your behalf if you are no longer able to. If you are aging or ill and have a child who has co-signed on a loan for you, it would be smart to adjust your accounts and take other steps to ensure, working with your child, so that they will not be held responsible for your debts.
If you pass away with business debts, whether or not your children can be held responsible for them depends on how the business is structured, whether or not your children are owners of the business, the type of debts, and whether or not your children co-signed or personally guaranteed those debts.
The best way to gain a better understanding of what happens to your debt when you pass away and to start planning before it’s too late is to talk with a professional.
DK Rus Law was founded by D Kathleen Rus, a Maryland estate planning lawyer, in 2003. We provide estate planning and other legal services to Carroll and Baltimore Counties, and are dedicated to providing a comfortable and personal environment for our clients to better understand the legal process plan for their future. Contact us today for more information, or to set up a free consultation.