No, you read that headline correctly. With a tip of the hat to Benjamin Franklin for the "Death & Taxes" part, debts can be an important estate planning consideration.
So, how should you plan for potential debts in your (or a loved one's) estate.
Carefully, very carefully.
Can debt be inherited?
Maybe, depending on the state in which the decedent resided, state law and the nature of the debt (e.g., was it shared?).
In fact, a recent article in The Huffington Post, titled “Debt and the Deceased: How Should Spouses and Heirs Proceed?,” offers some timely points to ponder.
Be honest about your financial situation.
Money issues are difficult for most families to discuss. This is especially true of older family members who thought life would turn out differently when it comes to their finances.
Long-term care, illnesses, bad investments and other factors can impact their bottom line.
Nevertheless, parents and their adult children or spouses need to broach this subject straight away and identify, then quantify the nature of any potential lingering debt.
Get appropriate advice. Now.
The original article advises borrowers, young and older, to speak with an experienced estate planning attorney for ways to extinguish or manage debt issues as part of current financial and estate planning.
Organize your documents. Consolidate all important financial documents in one centralized location. Ideally, all of the asset, debt, and tax documents would be included in an organized filing system which is thereafter kept current.
See what needs to be repaid. Get a handle on which categories of the debts will most likely need to be repaid after death and which ones might be canceled.
For example, some types of "unsecured" debt held in the deceased's name alone may be discharged. Examples include credit cards and federal student loans.
Educate the executor. Collection agencies have the right to try to collect on any outstanding debt they are hired to pursue—even when the survivors may not be legally bound to pay the debt.
Again, it is essential that you know what debts will likely be left behind and whether the estate or individual family members might be liable. An experienced estate planning attorney can help.
Once this is done, the executor should be told of this, and if possible, the borrower should leave good notes about how the executor should respond.
Anyone can die leaving debt behind, since we cannot predicate all of the twists and turns of life. Be prepared and review your estate plans to address current credit issues and create an action plan for any potential remaining debt after the you die.
Has it been a while since you have met with your estate planning attorney for a top-to-bottom review of your estate planning, assets ... and liabilities?
Perhaps it is time to meet with your insurance agent for a review of your life insurance for liquidity planning, too?
Better yet, why not schedule a time to meet with all of your advisors together?
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
Reference: The Huffington Post (April 1, 2015) “Debt and the Deceased: How Should Spouses and Heirs Proceed?”
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