Will Your Heirs Be Forced to Pay Your Debt?

​Does your financial plan include a sizable legacy for your loved ones? Do you want to leave assets to fund your grandchildren’s education? Or perhaps you may want to give your grown children a head start on their retirement savings.
 
Whatever your objectives, it’s important to develop a legacy plan that protects your assets and details how your funds will flow to your heirs. That plan should also include an assessment of the risks that could threaten your legacy.

One potential risk is debt. If you die with outstanding debt balances, it’s unlikely that the debt would pass directly to your heirs unless a specific heir was also named on the debt account. However, it is possible that the debts could be passed to your estate. During the probate process, your estate may have to pay outstanding debts before assets are passed to your loved ones. That could impact the size of your legacy.
 
Below are a few common types of debt that could affect the size of your estate. If you have any of these types of debt or other types, you may want to take action to protect your heirs and their potential inheritances.

Taxes
One of the most important steps in probate is the filing of a final tax return. The IRS and state tax agencies will want your heirs to settle any outstanding tax obligations you may have before your assets are distributed.
 
If you have overdue taxes, penalties and fees, and you pass away before those obligations are settled, the balance will fall to your estate. Your heirs may need to liquidate assets to pay the tax bills before inheritances are distributed. Take steps today to minimize your tax obligations, or make sure you leave plenty of liquid funds available so your heirs can pay the tax bills.

Credit Cards
Have you used credit cards to pay for large purchases or to cover emergency expenses? You’re not alone. Many Americans struggle with credit card debt. The good news is that your credit card balances won’t pass directly to your heirs unless they are also holders on the account.
 
However, your creditors could put liens on your assets so the funds can’t be distributed until the card balances are paid. If your assets can’t cover the entire balance, the remainder is usually written off or the card company absorbs it. Again, work to either minimize your debt or leave funds to help your estate cover the balances.

Student Loans
Much like your taxes and credit card debt, your student loan balances may also have to be paid out of your estate assets before those assets can be distributed to your heirs. Even if you don’t have any student loans, however, it’s still possible that student loan debt could impact your estate.
 
If you’ve co-signed a student loan for your child, it’s possible that the creditor could require the balance to be paid upon your death, even if your child is still making payments. Your child may be able to refinance the loan under their own name if they have solid credit, but that’s not always possible. If you’re the co-signer on a child’s student loans, take steps to check the terms to see how your death would impact repayment.

Ready to protect your legacy against debt and other threats? Contact us today at First Fidelity Group. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.

 
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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