Plan for debts as well as assets to avoid unpleasant surprises
A big part of estate planning is deciding how to distribute assets such as real estate, savings accounts, personal possessions and other valuable property among the people and organizations you wish to benefit. In order to avoid cutting into those gifts, however, it is also important to consider how your debts and liabilities may affect your heirs.
Some common types of debt that could end up reducing the size of your estate if you die before they are paid off include mortgages, credit card debt and unpaid medical bills.
Even if you do not owe a debt directly, your heirs could still be affected by any debts that you guaranteed for someone else, for instance as a co-signor on a student loan. Depending on how they are structured, business debts may also have the potential to chip away at your estate.
Tax liabilities are another potential stumbling block for the heirs of an estate, and they can be a big one. Because the statute of limitations for unpaid taxes is longer than it is for most other types of debt, tax liabilities have the potential to haunt heirs long after a person has died. Furthermore, if there is not enough money left in the estate to pay the tax debt, the IRS may be able to go after individual heirs to seek payment.
Debts are treated differently after death depending on a number of different factors. For example, one factor that can make a big difference is whether the debt is governed by California law, federal law or the laws of another state. An estate planning lawyer can help you plan for your debts as well as your assets in order to make sure your heirs get everything you intend them to.
Source: Forbes, "Heirs Left With Unpaid Bills May Inherit More Grief Than Gold," Deborah L. Jacobs, June 18, 2014