As you do your estate planning, do you find yourself wondering if you have too much debt? Maybe you’re concerned that you’re not leaving a positive legacy for your children. Instead, you’re just leaving them a lot of debt that they’re somehow going to have to pay once you are gone.
There is good news, even if you don’t use bankruptcy or some other tactic to eliminate your debt in advance: You won’t pass it to your children. They do not have to pay back the money that you borrowed.
Exceptions exist to almost every rule. In this case, though, the exception is just a situation where the child would already know they had to pay. Maybe they co-signed a loan with you. Maybe you have a joint credit card account. You may want to remind them of this if they haven’t been helping you pay it, as they will still be obligated to pay after you pass away, but they likely understood that upfront.
Otherwise, debt that you have gets erased or gets paid out of your estate. The kids do not have to do it on their own.
One thing to remember, though, is that taking money from your estate to pay off debt may feel to the children like they are paying. If they find out that you have $500,000 to leave to them but that you’re sitting on $300,000 of debt that has to be paid first, their real inheritance is just $200,000.
If you have questions about how this process works or what to do with debt, make sure you work with an experienced legal team.