Will My Family Inherit My Debts?

September 9, 2013  |  William F. Huefner

Are you deep in debt? If so, you’re not alone. While much of estate planning revolves around assets there are those who will leave more in the way of debts.
If you’re in this situation you may be quite worried about how you will protect your loved ones from your bad financial situation. Fortunately, there’s good news.
Your heirs will not inherit your debt directly. Your credit card bill will not suddenly pass into their name. That doesn’t mean creditors won’t try to make an argument that you let your heirs assume responsibility for some debts in certain situations, so make sure to consult with an attorney if you want to avoid this situation.
Secured debt is a little different. If you want your heirs to inherit a house that still carries the mortgage they will need to keep the mortgage current until the house is sold. If your heirs want to keep the house the mortgage may need to be refinanced.
However, creditors can go after the assets in your estate. Creditors may be able to seize secured assets or force the sale of other assets to pay your obligations. Debt reduces the amount of money that your children will inherit.
However, the lack of legal obligation on the part of your heirs does not stop some collection agencies. These agencies are notorious for pressuring a decedent’s relatives into paying debts that they have no obligation to pay.
Make sure that your executor warns your heirs. Your executor should also contact each collection agency with copies of your death certificate. The collection agency is supposed to turn their attention to the estate at that point. Your heirs can write the agency asking them to cease communications if they continue to be persistent.
The biggest threat to dying with debt is the knowledge that there may be little or nothing left of your estate once those debts are settled. You can still rest easy knowing that you won’t add to your children’s debt load directly.